Teachi
ngMat
er
i
al
f
or
t
hecour
se
Fundament
al
sof
Account
i
ngI
Tabl
eofCont
ent
s
Cour
seOut
l
i
ne
Chapt
erOne:Gener
alI
nt
r
oduct
i
on
1.
1 Def
i
ni
t
i
onofAccount
i
ng
1.
2 Ev
ol
ut
i
onofAccount
i
ng
1.
3 Pr
of
essi
onofAccount
ancy
1.
4.Account
i
ngPr
i
nci
pl
esandPr
act
i
ces
1.
5.Account
i
ngAsI
nf
or
mat
i
onSy
st
ems(
Dat
aPr
ocessi
ngMet
hods)
1.
6. Pr
i
nci
pl
esAndPr
act
i
ces
1.
7. Busi
nessTr
ansact
i
onAndTheAccount
i
ngEquat
i
on
1.
8. Fi
nanci
al
St
at
ement
s
Chapt
erTwo:Account
i
ngCy
cl
ef
orSer
v
i
ceRender
i
ngBusi
nesses
2.
1.
Nat
ur
eAndCl
assi
f
i
cat
i
onofAccount
s
2.
2.
Char
tofAccount
s
2.
3.
Fl
owofAccount
i
ngDat
a
2.
4.
Tr
i
al
Bal
ance
2.
5.
Adj
ust
i
ngPr
ocess
2.
6.
Wor
ksheet
sForFi
nanci
al
St
at
ement
s
2.
7.
Fi
nanci
al
St
at
ement
s
2.
8.
Jour
nal
i
zi
ngAndPost
i
ngAdj
ust
i
ng
2.
9.
Jour
nal
i
zi
ngandPost
i
ngCl
osi
ngEnt
r
i
es
2.
10. PostCl
osi
ngTr
i
al
Bal
ance
Chapt
erThr
ee:Account
i
ngForMer
chandi
si
ngBusi
nesses
3.
1.Account
i
ngForPur
chasesandSal
es
3.
2.Cr
edi
tTer
ms,
CashDi
scount
sandRet
ur
n&Al
l
owances
3.
3.Tr
adeDi
scount
,
Tr
anspor
t
at
i
onCost
sAndSal
esTax
3.
4.Wor
ksheet
sForMer
chandi
si
ngBusi
nesses
3.
5.Fi
nanci
al
St
at
ement
sForMer
chandi
si
ngBusi
nesses
3.
6.Adj
ust
i
ng,
Cl
osi
ngAndRev
er
si
ngEnt
r
i
es
3.
7.Cor
r
ect
i
onsofEr
r
or
s
Chapt
erFour
:Account
i
ngf
orAccr
ual
sandDef
er
r
al
s
4.
1.Accr
ual
s-Accr
uedAsset
sAndLi
abi
l
i
t
i
es
4.
2.Def
er
r
al
s-Pr
epai
dExpensesAndUnear
nedRev
enues
Chapt
erFi
v
e:Account
i
ngSy
st
emsDesi
gn
5.
1.
Pr
i
nci
pl
esOfAccount
i
ngSy
st
ems
5.
2.
Account
i
ngSy
st
emsI
nst
al
l
at
i
onAndRev
i
si
on
5.
3.
I
nt
er
nal
Cont
r
ol
Pr
i
nci
pl
esAndSt
r
uct
ur
es
5.
4.
Speci
al
Jour
nal
sAndSubsi
di
ar
yLedger
s
Chapt
erSi
x:
Account
i
ngForCashandTempor
ar
yI
nv
est
ment
6.
1.
Cont
r
ol
Ov
erCash
6.
2.
BankReconci
l
i
at
i
on
6.
3.
I
nt
er
nal
Cont
r
ol
ofCashRecei
pt
sandPay
ment
s
6.
4.
Shor
tTer
mI
nv
est
ment
Chapt
er7:Account
i
ngf
orRecei
v
abl
es
7.
1.
Cl
assi
f
i
cat
i
onofRecei
v
abl
es
7.
2.
Det
er
mi
nat
i
onofI
nt
er
est
,
DueDat
e,
andMat
ur
i
t
yVal
ue
7.
3.
Not
esRecei
v
abl
es
7.
4.
Uncol
l
ect
i
bl
eAccount
s
I
FUNDAMENTALSOFACCOUNTI
NGI
Account
i
ng
Chapt
erOne:I
nt
r
oduct
i
ont
o
Chapt
erOne
Gener
al
I
nt
r
oduct
i
ont
oAccount
i
ng
1.
1) Def
i
ni
t
i
onOfAccount
i
ng
Account
i
ngi
sdef
i
nedast
hepr
ocessofi
dent
i
f
y
i
ng,
measur
i
ng,
r
ecor
di
ng,
cl
assi
f
y
i
ng,
summar
i
zi
ng,anal
y
zi
ngandi
nt
er
pr
et
i
ngeconomi
cev
ent
s(
f
i
nanci
alt
r
ansact
i
ons)
andcommuni
cat
i
ngt
her
esul
t
st
her
eoft
ot
heent
i
t
i
esi
nt
er
est
edi
nsuchi
nf
or
mat
i
on
t
oenabl
et
hem makei
nf
or
medj
udgment
s.Theanal
y
si
st
hedef
i
ni
t
i
oni
sasf
ol
l
ows:
 I
dent
i
f
y
i
ng-t
odi
st
i
ngui
shanev
entorat
r
ansact
i
ont
hatmustber
ecor
ded.
 Measur
i
ng-quant
i
f
y
i
nganev
entorat
r
ansact
i
oni
.
e.account
i
ngdeal
swi
t
honl
y
t
hoset
r
ansact
i
onsandev
ent
st
hatcanbeexpr
essedi
nt
er
msofmoney
.
 Recor
di
ng-t
hi
si
st
hebasi
cf
unct
i
onofaccount
i
ng.I
ti
sessent
i
al
l
yconcer
ned
wi
t
hnotonl
yensur
i
ngt
hatal
lbusi
nesst
r
ansact
i
onsoff
i
nanci
alchar
act
erar
ei
n
f
actr
ecor
dedbutal
sot
hatt
heyar
er
ecor
dedi
nanor
der
l
ymanner
.
 Cl
assi
f
y
i
ng-i
ti
sconcer
nedwi
t
ht
hesy
st
emat
i
canal
y
si
soft
her
ecor
deddat
awi
t
h
av
i
ewt
ogr
oupt
r
ansact
i
onsorent
r
i
esofonenat
ur
eatonepl
ace.
 Summar
i
zi
ngt
hi
si
nv
ol
v
espr
esent
i
ngt
hecl
assi
f
i
eddat
ai
namannerwhi
chi
s
under
st
andabl
e and usef
ult
ot
he i
nt
er
nalaswel
lasext
er
nalend user
sof
account
i
ngst
at
ement
sorot
heraccount
i
ngi
nf
or
mat
i
on
 Anal
y
zi
ngmeansmet
hodi
calcl
assi
f
i
cat
i
on oft
hedat
a gi
v
en i
nt
hef
i
nanci
al
st
at
ement
s.Forexampl
e,al
li
t
emsr
el
at
i
ngt
o“
cur
r
entasset
s”ar
eputatone
pl
ace.
 I
nt
er
pr
et
i
ng-expl
ai
ni
ngt
hemeani
ngandsi
gni
f
i
canceoft
hedat
asosi
mpl
i
f
i
ed
andanal
y
zed
 Communi
cat
i
ng-t
heaccount
i
ngi
nf
or
mat
i
onaf
t
erbei
ngmeani
ngf
ul
l
yanal
y
zed
andi
nt
er
pr
et
edhast
obecommuni
cat
edi
napr
operf
or
m andmannert
ot
he
pr
operper
son.
Account
i
ng:TheLanguageofBusi
ness
Account
i
nghasr
i
ght
l
ybeent
er
medast
hel
anguageoft
hebusi
ness.Account
i
ngi
s
usedt
ocommuni
cat
ef
i
nanci
ali
nf
or
mat
i
ont
ov
ar
i
ouspar
t
i
eswhohav
esomest
ake
(
i
nt
er
est
)i
nt
heaf
f
ai
r
soft
hebusi
ness.
1.
2) Ev
ol
ut
i
onofAccount
i
ng
Si
mi
l
art
omedi
ci
ne,l
aw,economi
cs,andaccount
i
nghasev
ol
v
edi
nr
esponset
ot
he
soci
alandeconomi
cneedsofsoci
et
y
.Asbusi
nessandsoci
et
yhav
ebecomemor
e
compl
exov
ert
hey
ear
s,manycompl
execonomi
cdev
el
opmentandsoci
alpr
ogr
ams
can notbe under
t
aken due t
o shor
t
age off
i
nanci
ali
nf
or
mat
i
on.Ther
ef
or
e,
account
i
nghasev
ol
v
edt
odev
el
opnew concept
sandt
echni
quest
omeett
heev
er
i
ncr
easi
ngneedsf
orf
i
nanci
al
i
nf
or
mat
i
on.
 Pr
i
mi
t
i
v
eAccount
i
ng
I
nt
heci
v
i
l
i
zat
i
onofhumanbei
ng,
v
ar
i
oust
y
pesofr
ecor
dsofbusi
nessact
i
v
i
t
i
eshav
e
1
FUNDAMENTALSOFACCOUNTI
NGI
Account
i
ng
Chapt
erOne:I
nt
r
oduct
i
ont
o
beenmai
nt
ai
ned.Oft
hese,
t
heol
destknowni
sCl
ayTabl
etr
ecor
dsoft
hepay
mentof
wagesi
nBaby
l
oni
aar
ound 3600 B.
C.Ther
ear
enumer
ousev
i
dencesofr
ecor
d
keepi
ngandsy
st
emsofaccount
i
ngcont
r
ol
i
nEgy
ptandGr
eekCi
t
ySt
at
es.I
nEngl
i
sh,
undert
hedi
r
ect
i
onofKi
ngWi
l
l
i
am t
he12th r
ecor
dswer
ecompi
l
edt
oascer
t
ai
nt
he
f
i
nanci
al
r
esour
cesoft
heki
ngdom.
Dr
awbacksoft
hePr
i
mi
t
i
v
eAccount
i
ng:
I
.I
tdeal
twi
t
hl
i
mi
t
edaspect
soft
hef
i
nanci
aloper
at
i
onsofpr
i
v
at
eorgov
er
nment
ent
er
pr
i
ses.
I
I
.Ther
ewasnosy
st
emat
i
caccount
i
ngf
oral
lt
r
ansact
i
onofapar
t
i
cul
aruni
ti
.
e.
onl
yf
orspeci
f
i
ct
y
peorpor
t
i
onoft
r
ansact
i
on
 Doubl
eEnt
r
ySy
st
em Account
i
ng
Si
ncet
hepr
i
mi
t
i
v
eaccount
i
ngwasi
ncompl
et
e,
t
heev
ol
ut
i
onoft
hesy
st
em ofr
ecor
d
keepi
ngwhi
chwassai
dt
obecal
l
ed“
Doubl
eEnt
r
ySy
st
em”wasst
r
ongl
yi
nf
l
uenced
by Venet
i
an mer
chant
s.Doubl
e ent
r
y sy
st
em i
st
he r
ecor
di
ngs pr
ocess ofa
t
r
ansact
i
oni
nt
ot
wopar
t
s.Thef
i
r
stknowndescr
i
pt
i
onoft
hesy
st
em waspubl
i
shed
i
nI
t
al
yi
n1494byaper
soncal
l
edLUCAPACI
OLI
Doubl
eEnt
r
ySy
st
em pr
ov
i
des:
1.Foral
lbusi
nesst
r
ansact
i
on,r
ecor
di
ngi
nasy
st
emat
i
cmanneri
.
e.t
oest
abl
i
shi
n
anequi
l
i
br
i
um.Forexampl
e,i
fabusi
nessbor
r
owedBr500f
r
om abank,t
he
amountoft
hel
oani
sr
ecor
dedbot
hascashofBr500andanobl
i
gat
i
ont
or
epay
Br500.Ei
t
heroft
heBr500amounti
sbal
ancedbyt
heot
herBr500amount
.I
n
doubl
eent
r
ysy
st
em,
ev
er
yt
r
ansact
i
onent
er
edt
wi
cei
nt
hebooksofaccount
sas
meansofcheckandcont
r
ol
.
2.Fort
hesetofi
nt
egr
at
edf
i
nanci
al
st
at
ement
s,
r
epor
t
i
ngi
nmoneyt
er
ms
I
nspi
t
eoft
het
r
emendousdev
el
opmentofbusi
nessoper
at
i
onssi
nce1494,
and t
he
ev
eri
ncr
easi
ngcompl
exi
t
i
esofbusi
nessandgov
er
nment
alor
gani
zat
i
ons,t
hebasi
c
el
ement
sofDoubl
eEnt
r
ySy
st
em hav
econt
i
nuedv
i
r
t
ual
l
yunchanged.
Readi
ngAssi
gnment
:t
hecont
r
i
but
i
onofi
ndust
r
i
alr
ev
ol
ut
i
ont
ot
hedev
el
opmentof
account
i
ng
1.
3) Pr
of
essi
onofAccount
ancy
Tosayaf
i
el
dofst
udyi
sapr
of
essi
on,
t
her
emustbeaccumul
at
edbodyofknowl
edge
(
sci
ent
i
f
i
cknowl
edge)andani
ndi
v
i
dualshoul
dengagei
ni
tt
ogetear
ni
ngunl
i
ke
hobby
.Basedont
heset
wocr
i
t
er
i
aaccount
i
ngi
sdef
i
ni
t
el
yapr
of
essi
on.Ther
ear
e
empl
oy
mentoppor
t
uni
t
i
esi
naccount
i
ngandar
eexpect
edt
ocont
i
nuet
ogr
ow and
expandasbusi
nessesar
egr
owi
ngandexpandi
ngf
r
om t
i
met
ot
i
me.Ther
ear
et
wo
t
y
pesofj
oboppor
t
uni
t
i
esi
naccount
i
ng:
1.Pr
i
v
at
eAccount
i
ng
2.Publ
i
cAccount
i
ng
Pr
i
v
at
eAccount
i
ng:account
ant
sempl
oy
ed byabusi
nessf
i
r
m ornotf
orpr
of
i
t
or
gani
zat
i
on ar
e sai
dt
o be engaged i
n pr
i
v
at
e account
i
ng.These account
ant
s
2
FUNDAMENTALSOFACCOUNTI
NGI
Account
i
ng
Chapt
erOne:I
nt
r
oduct
i
ont
o
pr
ov
i
deaccount
i
ngser
v
i
cest
ooneor
gani
zat
i
onasal
ar
ybasi
sanddoav
ar
i
et
yof
wor
ki
ncl
udi
ngf
i
nanci
alaccount
i
ng,managementandcostaccount
i
ng,budget
i
ng,
i
nt
er
nal
audi
t
i
ng,
cont
r
ol
l
erandot
her
s.
Publ
i
cAccount
i
ng:account
ant
sandt
hei
rst
af
fwhopr
ov
i
deser
v
i
cesonaf
eebasi
s
ar
esai
dt
obeengagedi
npubl
i
caccount
i
ng.Publ
i
caccount
antar
ei
ndependent
pr
of
essi
onalper
sonsandpr
ov
i
deaccount
i
ngser
v
i
cet
omanycl
i
ent
s.Theypr
ov
i
de
ser
v
i
cesuchas:
1.Audi
t
i
ngpr
ov
i
di
nganopi
ni
onast
of
ai
r
nessandt
r
ut
hnessf
i
nanci
al
r
epor
t
s
2.Managementadv
i
sor
yser
v
i
cest
oof
f
erconst
r
uct
i
v
esuggest
i
onsf
ori
mpr
ov
i
nga
company
’
smet
hodofoper
at
i
ons
3.Account
i
ngSy
st
em Dev
el
opment
-dev
el
opi
nganASapr
i
v
at
eorpubl
i
cent
er
pr
i
ses
Readi
ngAssi
gnment
:speci
al
i
zedaccount
i
ngf
i
el
dssuchasf
i
nanci
alaccount
i
ng,
audi
t
i
ng,cost account
i
ng,manager
i
alaccount
i
ng,t
ax account
i
ng,account
i
ng
sy
st
ems,budget
ar
yaccount
i
ng,i
nt
er
nat
i
onalaccount
i
ng,not
f
or
pr
of
i
taccount
i
ng,
soci
al
account
i
ngandaccount
i
ngi
nst
r
uct
i
on
1.
4) Ty
pesandf
or
msofbusi
nessor
gani
zat
i
oni
nEt
hi
opi
a
 For
msofbusi
nessor
gani
zat
i
ons
Ther
ear
et
hr
eedi
f
f
er
entl
egal
f
or
msofbusi
nessor
gani
zat
i
on:
t
hosear
e
1.Sol
epr
opr
i
et
or
shi
p:
i
sabusi
nessownedandmanagedbysi
ngl
ei
ndi
v
i
dual
.
Adv
ant
ages:
 Easyt
oest
abl
i
sht
hebusi
ness
 I
ti
sl
eastr
egul
at
edbygov
er
nment
 Nopr
of
i
tshar
i
ng
Di
sadv
ant
ages:
 Li
mi
t
edl
i
f
e
 Li
mi
t
edcapi
t
al
t
of
i
nancebusi
nessoper
at
i
on
 Unl
i
mi
t
edl
i
abi
l
i
t
yt
heowneri
sr
esponsi
bl
et
opayt
hedebtoft
hebusi
ness
ev
enf
r
om hi
sper
sonalasseti
ncaset
hebusi
nessunabl
et
omeeti
t
s
l
i
abi
l
i
t
y
)
2.Par
t
ner
shi
p:-i
sbusi
nessor
gani
zat
i
onest
abl
i
shedbyt
woormor
eper
sons.
Adv
ant
ages:
 Easi
erandl
essexpensi
v
et
oest
abl
i
sht
hancor
por
at
i
on
 Ar
enothi
ghl
yr
egul
at
edbygov
er
nment
 Mor
ecapi
t
al
andmanager
i
al
ski
l
l
t
hanasi
ngl
epr
opr
i
et
orshi
p
Di
sadv
ant
ages:
 Li
mi
t
edl
i
f
e
 Unl
i
mi
t
ed l
i
abi
l
i
t
y(
t
hepar
t
ner
sar
er
esponsi
bl
et
o payt
hedebtoft
he
busi
nessev
enf
r
om t
hei
rper
sonalasset
si
ncaset
hebusi
nessunabl
et
o
meeti
t
sl
i
abi
l
i
t
y
)
 Conf
l
i
ctbet
weenpar
t
ner
st
hr
oughoutoper
at
i
ngt
hebusi
ness.
3.Cor
por
at
i
on:-i
sabusi
nessor
gani
zedasasepar
at
el
egalent
i
t
yunderst
at
e
3
FUNDAMENTALSOFACCOUNTI
NGI
Account
i
ng
Chapt
erOne:I
nt
r
oduct
i
ont
o
cor
por
at
i
onl
awwi
t
howner
shi
pdi
v
i
dedi
nt
ot
r
ansf
er
abl
eshar
esofst
ock.
Adv
ant
ages:
 Longl
i
f
e
 Li
mi
t
edl
i
abi
l
i
t
y
 Canr
ai
sehugeamountofcapi
t
al
t
of
i
nancebusi
nessoper
at
i
on
Di
sadv
ant
ages:
 Doubl
et
axat
i
on
 Hi
ghl
yr
egul
at
edbygov
er
nment
 Di
f
f
i
cul
t
yofcont
r
ol
l
i
ngmanagement
,becauseowner
shi
pandmanagement
i
sdi
v
or
cedi
ncor
por
at
i
on.
 Ty
pesofBusi
nessOr
gani
zat
i
ons
Accor
di
ngt
ot
hei
rt
y
peofact
i
v
i
t
i
esornat
ur
eofoper
at
i
ons,busi
nessor
gani
zat
i
ons
ar
eal
socl
assi
f
i
edi
nt
ot
hr
eemai
nt
y
pes:
1.Ser
v
i
ce r
ender
i
ng busi
nesses: - ar
e busi
ness or
gani
zat
i
ons t
hat ar
e
pr
edomi
nant
l
yengagedi
nr
ender
i
ngofser
v
i
cest
ocust
omer
sf
ort
hepur
pose
ofmaxi
mi
zi
ngpr
of
i
t
.
Exampl
es:Hot
el
s,
r
est
aur
ant
s,
caf
et
er
i
as,
bar
s,
t
r
anspor
tandcommuni
cat
i
on
ser
v
i
ces,pr
of
essi
onalf
i
r
ms l
i
ke consul
t
at
i
ons by account
ant
s,l
awy
er
s,
engi
neer
set
c.
2.Mer
chandi
si
ngbusi
nesses:-i
spr
of
i
tseeki
ngbusi
nesses,whi
char
eengaged
i
npur
chasi
ngandr
esel
l
i
ngofmer
chandi
ses.
Exampl
es:Super
mar
ket
s,bout
i
ques,gar
mentandshoeshops,dr
ugst
or
es,
st
at
i
onar
yshops,
aut
ospar
epar
t
s,
i
mpor
t
er
s,
expor
t
er
set
c.
3.Manuf
act
ur
i
ngbusi
nesses:-ar
ebusi
nessor
gani
zat
i
onst
hatar
epr
i
mar
i
l
y
i
nv
ol
v
edi
nt
heconv
er
si
onofr
awmat
er
i
al
sandpar
t
si
nt
of
i
ni
shedgoods;
and
sal
et
hei
rf
i
ni
shed goods t
o mer
chandi
si
ng ent
er
pr
i
ses and consumer
s.
Somet
i
mes,t
heysal
egoodst
oot
hermanuf
act
ur
i
ngf
i
r
ms,whi
chut
i
l
i
zet
he
goodsasr
awmat
er
i
al
sf
orpr
oduct
i
onact
i
v
i
t
i
es.
Exampl
es:Cementf
act
or
i
es,sugarf
act
or
i
es,soapf
act
or
i
es,t
ext
i
l
ef
act
or
i
es,
paperf
act
or
i
es,
et
c.
4
FUNDAMENTALSOFACCOUNTI
NGI
Account
i
ng
Chapt
erOne:I
nt
r
oduct
i
ont
o
Account
i
ngFunct
i
onsPer
f
or
medbyaccount
ant
s
5
FUNDAMENTALSOFACCOUNTI
NGI
Account
i
ng
Chapt
erOne:I
nt
r
oduct
i
ont
o
Obser
v
eev
ent
s
I
dent
i
f
yt
hoseev
ent
st
hat
ar
eeconomi
cev
ent
s
Obser
v
e,
i
dent
i
f
y
andmeasur
e
ev
ent
s.
Measur
eeconomi
cev
ent
si
n
f
i
nanci
al
t
er
ms
Recor
dmeasur
ement
s
Cl
assi
f
ymeasur
ement
s
Recor
d,
Cl
assi
f
yand
summar
i
ze
measur
ement
s
Summar
i
zemeasur
ement
s
Repor
teconomi
cev
ent
si
n
f
i
nanci
al
st
at
ement
sand
ot
herr
epor
t
s
Repor
teconomi
c
ev
ent
sandi
nt
er
pr
et
f
i
nanci
al
st
at
ement
s
I
nt
er
pr
ett
hecont
ent
sof
f
i
nanci
al
st
at
ement
sand
ot
herr
epor
t
s.
6
1.
5) Account
i
ngasI
nf
or
mat
i
onSy
st
ems
I
nor
dert
opr
ov
i
dei
nf
or
mat
i
onanent
i
t
ymustest
abl
i
shi
t
sownaccount
i
ngsy
st
em.
Anaccount
i
ngsy
st
em consi
st
sofmet
hodsanddev
i
cesusedbyanent
i
t
yt
okeep
t
r
acki
t
sf
i
nanci
alact
i
v
i
t
i
esandsummar
i
zei
namannerusef
ult
odeci
si
onmaker
s.
Thepr
ocessoff
or
mi
nganaccount
i
ngsy
st
em t
opr
ov
i
dei
nf
or
mat
i
oni
sper
f
or
medas
f
ol
l
ows:
I
dent
i
f
i
cat
i
onofUser
s
I
nf
or
mat
i
onneedof
user
s
Economi
cDat
a
Account
i
ngSy
st
em
Fi
nanci
al
Repor
t
s
Deci
si
on
byuser
s
St
ep1:I
dent
i
f
i
cat
i
onofUser
sofAccount
i
ngI
nf
or
mat
i
on
I
ndi
v
i
dual
s or or
gani
zat
i
ons who/
whi
ch hav
e st
ake (
i
nt
er
est
)i
n account
i
ng
i
nf
or
mat
i
onofabusi
nesst
omakesounddeci
si
onsar
ecal
l
eduser
sofaccount
i
ng
i
nf
or
mat
i
on.Theywi
l
lr
ecei
v
edi
f
f
er
entr
epor
t
sabusi
nesst
omakedeci
si
onandar
e
cl
assi
f
i
edi
nt
ot
wo:
(
1)I
nt
er
naluser
sand(
2)Ext
er
nal
user
s
1.I
nt
er
nalUser
s:ar
ei
ndi
v
i
dual
swi
t
hi
nanor
gani
zat
i
onorbusi
nessent
i
t
yt
hatneed
account
i
ngi
nf
or
mat
i
onoft
hebusi
nessf
ort
heaf
f
ai
r
soft
hebusi
ness.I
nt
er
nal
user
sar
er
esponsi
bl
ef
ort
headmi
ni
st
r
at
i
onoft
hebusi
nessandi
ncl
udet
he
f
ol
l
owi
ng management
,BOD,depar
t
menthead,cor
por
at
e of
f
i
cerl
i
ke chi
ef
execut
i
v
e of
f
i
cer
s and chi
efoper
at
i
ng of
f
i
cer
s and chi
eff
i
nanci
alof
f
i
cer
s.
Managementneedanaccount
i
ngi
nf
or
mat
i
on:
 Topl
anf
ut
ur
eoper
at
i
on
 Toev
al
uat
eandcont
r
ol
cur
r
entoper
at
i
on
 Toknowt
hepr
of
i
t
abi
l
i
t
yofeachdepar
t
ment
 Toknowt
hecompany
’
scashposi
t
i
on
 Toknowt
het
r
endofear
ni
ngs
 Toassesswhet
herspendi
ngkeptwi
t
hi
nt
hebudgetl
i
mi
tornot
(
especi
al
l
y
i
nNGOandGov
er
nment
al
or
gani
zat
i
on)
 Toassur
ewhet
herexpendi
t
ur
ear
eaut
hor
i
zedornot
(gov
er
nment
aland
not
f
or
pr
of
i
tor
gani
zat
i
on)
2.Ext
er
nalUser
s:ar
et
hosei
ndi
v
i
dualori
nst
i
t
ut
i
onsi
nsi
deorout
si
deaneconomi
c
ent
i
t
ywho/
whi
chneedaccount
i
ngi
nf
or
mat
i
onaboutt
hatent
i
t
yf
ort
hei
rown
af
f
ai
r
.Theyneedaccount
i
ngi
nf
or
mat
i
onf
ort
hei
rbenef
i
t
.Thi
sgr
oupi
ncl
ude:
owner
soft
hebusi
ness,
pot
ent
i
al
i
nv
est
or
s,
banker
s,
suppl
i
er
sandot
hercr
edi
t
or
s,
empl
oy
eesandl
aboruni
on,
gov
er
nment
al
agenci
es,
et
c.
Owner
sneedaccount
i
ngi
nf
or
mat
i
on:
 Toknowt
heoper
at
i
ngr
esul
t
soft
hebusi
ness
7
 Toknowi
t
sf
i
nanci
al
posi
t
i
on
Pot
ent
i
ali
nv
est
or
sneedaccount
i
ngi
nf
or
mat
i
onabusi
nesst
o:
 Assesst
her
i
sknessoft
hei
nv
est
ment
 Pr
edi
cti
t
sf
ut
ur
epr
osper
i
t
i
es
Banker
sneedaccount
i
ngi
nf
or
mat
i
ont
o
 Ev
al
uat
et
hef
i
nanci
al
soundnessofabusi
nessor
gani
zat
i
on
 Assessr
i
sksi
nv
ol
v
edi
ngi
v
i
ngl
oans
Suppl
i
er
sneedaccount
i
ngi
nf
or
mat
i
ont
o:
 Deci
dewhet
hert
osel
l
ornott
osel
l
goodsandser
v
i
cesoncr
edi
tbasi
s
Empl
oy
ees and l
abor uni
on need account
i
ng i
nf
or
mat
i
on bef
or
e begi
nni
ng
negot
i
at
i
onoff
ornewl
aborcont
r
actt
oknow:
 Thef
i
nanci
al
posi
t
i
onofabusi
nesses
 Thepr
of
i
t
abi
l
i
t
yofabusi
ness
 Thest
abi
l
i
t
yofabusi
ness
Gov
er
nment
alAgenci
esneedaccount
i
ngi
nf
or
mat
i
onf
orpur
poseofdet
er
mi
ni
ng
i
ncomet
axpay
abl
eandpensi
oncont
r
i
but
i
onofanempl
oy
ee
St
ep2:I
nf
or
mat
i
onNeedofUser
s
Thi
st
odet
er
mi
net
hei
nf
or
mat
i
onneedsofi
nt
er
naluser
si
.
e.t
het
y
peofi
nf
or
mat
i
on
needed byi
nt
er
nalorext
er
nalst
akehol
der
sshoul
d bei
dent
i
f
i
ed byi
nf
or
mat
i
on
pr
ov
i
derbef
or
ei
nf
or
mat
i
oni
spr
ov
i
dedt
ouser
s.
St
ep3:I
nf
or
mat
i
onPr
ocessi
ng
Thei
nf
or
mat
i
onneedofuser
sdet
er
mi
net
heeconomi
cdat
at
obegat
her
edand
pr
ocessedbyaccount
i
ngsy
st
em.Thent
heaccount
i
ngsy
st
em gener
at
er
epor
t
st
hat
communi
cat
eessent
i
al
i
nf
or
mat
i
ont
ouser
s
1.
6) Account
i
ngPr
i
nci
pl
esandPr
act
i
ces
Exper
i
encedpr
of
essi
onal
account
ant
scont
r
i
but
et
hei
rbestt
hi
nki
ngt
ot
hesol
ut
i
onof
pr
obl
em cont
i
nual
l
yconf
r
ont
i
ngt
hei
rst
af
forempl
oy
ees.Pr
of
essi
onalassoci
at
i
on
per
i
odi
cal
l
yi
ssue pr
onouncement
s on account
i
ng pr
i
nci
pl
es and concept
s.
Account
i
ng pr
i
nci
pl
es orst
andar
ds ar
e conv
ent
i
onalr
ul
es and r
egul
at
i
ons t
hat
gov
er
nact
i
onsi
nunder
t
aki
ngaccount
i
ngact
i
v
i
t
i
es.Concept
sar
ebasi
cassumpt
i
on
uponwhi
cht
hesci
enceofaccount
i
ngi
sbased.Pr
act
i
cesar
et
heappl
i
cat
i
onof
account
i
ng pr
i
nci
pl
es and concept
st
o speci
f
i
c account
i
ng si
t
uat
i
on.The most
i
mpor
t
antconcept
sandpr
i
nci
pl
esar
e:
1.
6.
1.Ov
er
v
i
ewofi
nt
er
nat
i
onalf
i
nanci
alr
epor
t
i
ngst
andar
ds(
I
FRS)
I
nt
er
nat
i
onalFi
nanci
alRepor
t
i
ngSt
andar
ds.Fi
nanci
alaccount
i
ngst
andar
dsi
ssued
by
t
heI
ASBar
er
ef
er
r
edt
oasI
nt
er
nat
i
onal
Fi
nanci
al
Repor
t
i
ngSt
andar
ds(
I
FRS)
.
Fi
nanci
alr
epor
t
i
ng
» Gener
al
pur
posef
i
nanci
al
r
epor
t
i
ng
8
» ai
mst
opr
ov
i
deusef
ulf
i
nanci
ali
nf
or
mat
i
onaboutt
her
epor
t
i
ngent
i
t
y
t
opr
i
mar
yuser
swhocannotr
equi
r
et
her
epor
t
i
ngent
i
t
yt
opr
ov
i
de
i
nf
or
mat
i
ondi
r
ect
l
yt
ot
hem.
» Speci
al
pur
posef
i
nanci
al
r
epor
t
i
ng
» r
espondst
ot
her
equi
r
ement
sofuser
st
hathav
et
heaut
hor
i
t
yt
or
equi
r
e
t
her
epor
t
i
ngent
i
t
yt
opr
ov
i
det
hei
nf
or
mat
i
ont
hatt
heyneedf
ort
hei
r
pur
posesdi
r
ect
l
yt
ot
hem.Exampl
esi
ncl
ude:
» pr
udent
i
al
r
egul
at
i
onr
epor
t
i
ngr
equi
r
ement
s
» t
axr
epor
t
i
ngr
equi
r
ement
s
I
nt
er
nat
i
onalFi
nanci
al
Repor
t
i
ngSt
andar
ds(
I
FRS)
*
» Desi
gnedf
orgener
al
pur
posef
i
nanci
al
r
epor
t
i
ngbypr
of
i
t
or
i
ent
edent
i
t
i
es
» mi
ghtbef
oundt
obeappr
opr
i
at
ef
ornot
f
or
pr
of
i
tact
i
v
i
t
i
est
oo
» Focused on i
nf
or
mat
i
on needs of(
pr
i
mar
yuser
s)exi
st
i
ng and pot
ent
i
al
i
nv
est
or
s,l
ender
sandot
hercr
edi
t
or
swhocannotr
equi
r
ei
nf
or
mat
i
onf
r
om
t
heent
i
t
y
» i
nf
or
mat
i
ont
oenabl
epr
i
mar
yuser
st
omaket
hei
rownassessment
sof
t
her
epor
t
i
ngent
i
t
y
’
spr
ospect
sf
orf
ut
ur
enetcashi
nf
l
ows
» as a basi
sf
ort
hei
rdeci
si
ons t
o buy
,hol
d,sel
lequi
t
y and debt
i
nst
r
ument
sort
opr
ov
i
deal
oanort
or
equi
r
eset
t
l
ementofal
oan
1.
6.
2.Basi
cAssumpt
i
onsandaccount
i
ngpr
i
nci
pl
es
Thef
i
v
ebasi
cassumpt
i
onsi
nt
ur
n:
(
1)economi
cent
i
t
y
,
(
2)goi
ngconcer
n,
(
3)monet
ar
yuni
t
,
(
4)per
i
odi
ci
t
y
,
and(
5)accr
ualbasi
s.
Economi
cEnt
i
t
yAssumpt
i
on
Theeconomi
cent
i
t
yassumpt
i
onmeanst
hateconomi
cact
i
v
i
t
ycanbei
dent
i
f
i
ed
wi
t
h
apar
t
i
cul
aruni
tofaccount
abi
l
i
t
y
.I
not
herwor
ds,acompanykeepsi
t
sact
i
v
i
t
y
separ
at
eanddi
st
i
nctf
r
om i
t
sowner
sandanyot
herbusi
nessuni
t
.Thus,t
heent
i
t
y
conceptdoesnotnecessar
i
l
yr
ef
ert
oal
egalent
i
t
y
.Apar
entandi
t
ssubsi
di
ar
i
esar
e
9
separ
at
el
egalent
i
t
i
es,butmer
gi
ngt
hei
ract
i
v
i
t
i
esf
oraccount
i
ngandr
epor
t
i
ng
pur
posesdoesnotv
i
ol
at
et
heeconomi
cent
i
t
yassumpt
i
on
Goi
ngConcer
nAssumpt
i
on
Mostaccount
i
ngmet
hodsr
el
yont
hegoi
ngconcer
nassumpt
i
on—t
hatt
hecompany
wi
l
lhav
eal
ongl
i
f
e.Despi
t
enumer
ousbusi
nessf
ai
l
ur
es,mostcompani
eshav
ea
f
ai
r
l
yhi
ghcont
i
nuancer
at
e.Asar
ul
e,weexpectcompani
est
ol
astl
ongenought
o
f
ul
f
i
l
l
t
hei
robj
ect
i
v
esandcommi
t
ment
s.
Monet
ar
yUni
tAssumpt
i
on
Themonet
ar
yuni
tassumpt
i
onmeanst
hatmoneyi
st
hecommondenomi
nat
orof
economi
cact
i
v
i
t
yandpr
ov
i
desanappr
opr
i
at
ebasi
sf
oraccount
i
ngmeasur
ement
andanal
y
si
s.Thati
s,
t
hemonet
ar
yuni
ti
st
hemostef
f
ect
i
v
emeansofexpr
essi
ngt
o
i
nt
er
est
edpar
t
i
eschangesi
ncapi
t
al
andexchangesofgoodsandser
v
i
ces
Per
i
odi
ci
t
yAssumpt
i
on
Tomeasur
et
her
esul
t
sofacompany
’
sact
i
v
i
t
yaccur
at
el
y
,wewoul
dneedt
owai
t
unt
i
li
tl
i
qui
dat
es.Deci
si
onmaker
s,howev
er
,cannotwai
tt
hatl
ong f
orsuch
i
nf
or
mat
i
on.User
sneedt
oknowacompany
’
sper
f
or
manceandeconomi
cst
at
uson
at
i
mel
y basi
s so t
hatt
hey can ev
al
uat
e and compar
e compani
es,and t
ake
appr
opr
i
at
eact
i
ons.Ther
ef
or
e,compani
esmustr
epor
ti
nf
or
mat
i
onper
i
odi
cal
l
y
.The
per
i
odi
ci
t
y(
ort
i
me per
i
od)assumpt
i
on i
mpl
i
est
hata companycan di
v
i
de i
t
s
economi
cact
i
v
i
t
i
esi
nt
oar
t
i
f
i
ci
alt
i
meper
i
ods.Theset
i
meper
i
odsv
ar
y
,
butt
hemost
commonar
emont
hl
y
,
quar
t
er
l
y
,
andy
ear
l
y
Accr
ualBasi
sofAccount
i
ng
Compani
espr
epar
ef
i
nanci
alst
at
ement
susi
ng t
heaccr
ualbasi
sofaccount
i
ng.
Accr
ualbasi
s account
i
ng means t
hatt
r
ansact
i
ons t
hatchange a company
’
s
f
i
nanci
al
st
at
ement
sar
er
ecor
dedi
nt
heper
i
odsi
nwhi
cht
heev
ent
soccur
Basi
cPr
i
nci
pl
esofAccount
i
ng
Ther
ear
ef
ourbasi
cpr
i
nci
pl
esofaccount
i
ngt
or
ecor
dandr
epor
tt
r
ansact
i
ons:(
1)
measur
ement
,(
2)r
ev
enue r
ecogni
t
i
on,(
3)expense r
ecogni
t
i
on,and (
4)f
ul
l
di
scl
osur
e.Wel
ookateachi
nt
ur
n
Measur
ementPr
i
nci
pl
es
Themostcommonl
yusedmeasur
ement
sar
ebasedonhi
st
or
i
calcostandf
ai
rv
al
ue.
Sel
ect
i
onofwhi
chpr
i
nci
pl
et
of
ol
l
owgener
al
l
yr
ef
l
ect
sat
r
adeof
fbet
weenr
el
ev
ance
andf
ai
t
hf
ul
r
epr
esent
at
i
on.
10
Hi
st
or
i
calCost
.I
FRSr
equi
r
est
hatcompani
esaccountf
orandr
epor
tmanyasset
s
andl
i
abi
l
i
t
i
esont
hebasi
sofacqui
si
t
i
onpr
i
ce.Thi
si
sof
t
enr
ef
er
r
edt
oast
he
hi
st
or
i
calcostpr
i
nci
pl
e.Costhasani
mpor
t
antadv
ant
ageov
erot
herv
al
uat
i
ons:I
ti
s
gener
al
l
yt
houghtt
obeaf
ai
t
hf
ulr
epr
esent
at
i
onoft
heamountpai
df
oragi
v
eni
t
em.
Fai
rVal
ue.Fai
rv
al
uei
sdef
i
nedas“
t
hepr
i
cet
hatwoul
dber
ecei
v
edt
osel
lanasset
orpai
dt
ot
r
ansf
eral
i
abi
l
i
t
yi
nanor
der
l
yt
r
ansact
i
onbet
weenmar
ketpar
t
i
ci
pant
sat
t
hemeasur
ementdat
e.
”Fai
rv
al
uei
st
her
ef
or
eamar
ket
basedmeasur
e(
exi
tpr
i
ce)
.
Recent
l
y
,I
FRShasi
ncr
easi
ngl
ycal
l
edf
oruseoff
ai
rv
al
uemeasur
ement
si
nt
he
f
i
nanci
al
st
at
ement
s.TheI
ASBbel
i
ev
est
hatf
ai
rv
al
uei
nf
or
mat
i
oni
smor
er
el
ev
antt
o
user
st
hanhi
st
or
i
cal
cost
.
Rev
enueRecogni
t
i
onPr
i
nci
pl
e
Rev
enuer
ef
er
st
oi
ncr
easesi
neconomi
cbenef
i
t
sdur
i
ngt
heaccount
i
ngper
i
odi
nt
he
f
or
m ofenhancement
sofasset
sordecr
easesofl
i
abi
l
i
t
i
est
hatr
esul
ti
ni
ncr
easesi
n
equi
t
y
,ot
hert
hant
hoser
el
at
i
ngt
ocont
r
i
but
i
onsf
r
om equi
t
ypar
t
i
ci
pant
s.Whent
he
companysat
i
sf
i
est
heper
f
or
manceobl
i
gat
i
on,
i
tshoul
dr
ecogni
zer
evenue.
ExpenseRecogni
t
i
onPr
i
nci
pl
e
Expensesr
ef
er
st
odecr
easesi
neconomi
cbenef
i
t
sdur
i
ngt
heaccount
i
ngper
i
odi
n
t
hef
or
m ofout
f
l
owsordepl
et
i
onsofasset
sori
ncur
r
encesofl
i
abi
l
i
t
i
est
hatr
esul
ti
n
decr
easesi
nequi
t
y
,ot
hert
hant
hoser
el
at
i
ngt
odi
st
r
i
but
i
onst
oequi
t
ypar
t
i
ci
pant
s.
Expensesshoul
dber
ecogni
zedi
nt
heper
i
odi
nwhi
cht
heyar
ei
ncur
r
ed.
Ful
lDi
scl
osur
ePr
i
nci
pl
e
I
ndeci
di
ngwhati
nf
or
mat
i
ont
or
epor
t
,compani
esf
ol
l
ow t
hegener
alpr
act
i
ceof
pr
ov
i
di
ngi
nf
or
mat
i
ont
hati
sofsuf
f
i
ci
enti
mpor
t
ancet
oi
nf
l
uencet
hej
udgmentand
deci
si
onsofani
nf
or
meduser
.Of
t
enr
ef
er
r
edt
oast
hef
ul
ldi
scl
osur
epr
i
nci
pl
e,i
t
r
ecogni
zest
hatt
henat
ur
eandamountofi
nf
or
mat
i
oni
ncl
udedi
nf
i
nanci
alr
epor
t
s
r
ef
l
ect
saser
i
esofj
udgment
al
t
r
adeof
f
s.
1.
7) Busi
nessTr
ansact
i
onandt
heAccount
i
ngEquat
i
on
1.
7.
1Busi
nessTr
ansact
i
on
Busi
nesst
r
ansact
i
onsar
eev
ent
sorcondi
t
i
onst
hatmustber
ecor
dedi
nt
er
msof
moneyi
naccount
i
ngr
ecor
ds.
 Ev
ent
spay
ment
sorapr
omi
set
omakepay
mentorr
ecei
pt
soraccept
anceofa
pr
omi
set
or
ecei
v
ecashwi
t
hi
naspeci
f
i
edper
i
odoft
i
mei
nexchangef
orgoods
andser
v
i
ces
 Condi
t
i
ons-t
het
ear
i
ngandwear
i
ngoutofl
ongl
i
v
edpr
oper
t
i
esofabusi
nessi
.
e.
11
decr
easei
nusef
ul
nessofl
ongl
i
v
edpr
oper
t
y
.
Exampl
e:
 Mont
hl
yel
ect
r
i
ci
t
ybi
l
l
ofBr100
 Theacqui
si
t
i
onofal
andandabui
l
di
ngf
orBr250,
000
Nat
ur
eofBusi
nessTr
ansact
i
on
 Busi
nesst
r
ansact
i
oncoul
dbeSi
mpl
eorcompl
ex
 Busi
nesst
r
ansact
i
oncoul
dbeI
nt
er
nal
orext
er
nal
 Busi
nesst
r
ansact
i
onaf
f
ect
st
hef
i
nanci
alposi
t
i
onofabusi
nessandi
t
soper
at
i
ng
r
esul
t
soratl
easti
taf
f
ect
st
woi
t
ems
 Busi
nesst
r
ansact
i
onmustbesuppor
t
edbysour
cedocument
s(
busi
nesspaper
s)
.
Sour
cedocument
si
ncl
udesal
esi
nv
oi
ce,r
ecei
pt
s,checks,checkst
ub,f
r
i
ghtbi
l
l
,
andet
c.Busi
nessdocument
snor
mal
l
ycont
ai
ni
nf
or
mat
i
onast
ot
hemonet
ar
y
amountt
ober
ecor
ded,t
hepar
t
i
esi
nv
ol
v
ed,t
het
er
m oft
r
ansact
i
onandot
her
r
el
ev
anti
nf
or
mat
i
onsuchasnat
ur
eanddat
eoft
r
ansact
i
ons.
1.
7.
2TheAccount
i
ngEquat
i
on
Thewhol
eoff
i
nanci
alaccount
i
ngi
sbasedonav
er
ysi
mpl
ei
dea.Thi
si
scal
l
edt
he
account
i
ngequat
i
onwhi
chsoundscompl
i
cat
edbuti
nf
acteasyt
ounder
st
and.I
fa
f
i
r
mi
st
obesetuporest
abl
i
sheddef
i
ni
t
el
yi
tneedr
esour
ces.I
nt
hef
i
r
stpl
acel
etus
assumet
hati
ti
st
heowneroft
hebusi
nesshassuppl
i
edal
loft
her
esour
ces.Thi
s
canbeshown:
Resour
cesi
nt
heBusi
ness=Resour
cesSuppl
i
edbyt
he
Owner
I
naccount
i
ngt
het
er
m usedt
odescr
i
bet
her
esour
cessuppl
i
edbyt
heowneri
scal
l
ed
Owner
’
sEqui
t
y
.Thet
er
m usedt
odescr
i
bet
heact
ualr
esour
cei
nabusi
nessi
scal
l
ed
Asset
.Thus,
t
heaccount
i
ngequat
i
oni
s:
Asset
s=Owner
’
sEqui
t
y
I
nt
hesecondpl
acel
etusassumet
hatpeopl
eot
hert
hant
heownerhav
esuppl
i
ed
someoft
her
esour
ces(
mat
er
i
al
orf
i
nanci
al
r
esour
ces)
.Thus,
Resour
cesi
naBusi
ness
Resour
ces
+ Resour
ces
=
Suppl
i
ed
Suppl
i
ed
byt
heOwner
byOt
her
s
Li
abi
l
i
t
i
esar
et
het
er
m gi
v
ent
ot
heamount
sofr
esour
cesuppl
i
edpeopl
eot
hert
han
t
heowner
s.Thi
si
samountofassetowedt
oot
her
sbyt
hebusi
ness.Thust
he
account
i
ngequat
i
oni
snowchangedt
o
Asset
s=Owner
’
sEqui
t
y+Li
abi
l
i
t
i
es
Howev
er
,l
i
abi
l
i
t
i
esar
epl
aced bef
or
e
Owner
’
sEqui
t
y
,i
nt
heaccount
i
ngequat
i
on,becausecr
edi
t
or
shav
epr
ef
er
ent
i
alr
i
ght
t
ot
heasset
soft
hebusi
ness.Thus,
t
heaccount
i
ngequat
i
oncanbest
at
edas:
Asset
s=Li
abi
l
i
t
i
es+Owner
’
sEqui
t
y
1.
7.
3 Def
i
ni
t
i
onofTer
msUsedi
nBusi
nessTr
ansact
i
onsandAccount
i
ngEquat
i
on
Def
i
ni
t
i
onofel
ement
soff
i
nanci
al
st
at
ement
s
12
ASSET.Ar
esour
cecont
r
ol
l
edbyt
heent
i
t
yasar
esul
tofpastev
ent
sandf
r
om whi
ch
f
ut
ur
e economi
c benef
i
t
s ar
e expect
ed t
of
l
ow t
ot
he ent
i
t
y
.
eg cash ,
account
r
ecei
v
abl
e,
suppl
i
esequi
pmentbui
l
di
nget
c
LI
ABI
LI
TY.Apr
esentobl
i
gat
i
onoft
heent
i
t
yar
i
si
ngf
r
om pastev
ent
s,
t
heset
t
l
ement
ofwhi
chi
sexpect
edt
or
esul
ti
nanout
f
l
owf
r
om t
heent
i
t
yofr
esour
cesembody
i
ng
economi
cbenef
i
t
s.Egaccountpay
abl
e,
wagepay
abl
ebondpay
abl
eet
c
EQUI
TY.Ther
esi
duali
nt
er
esti
nt
heasset
soft
heent
i
t
yaf
t
erdeduct
i
ngal
li
t
s
l
i
abi
l
i
t
i
es.Theel
ement
sofi
ncomeandexpensesar
edef
i
nedasf
ol
l
ows.
I
NCOME/
Rev
enue.I
ncr
easesi
neconomi
cbenef
i
t
sdur
i
ngt
heaccount
i
ngper
i
odi
n
t
hef
or
m ofi
nf
l
owsorenhancement
sofasset
sordecr
easesofl
i
abi
l
i
t
i
est
hatr
esul
t
i
ni
ncr
eases i
n equi
t
y
,ot
hert
han t
hose r
el
at
i
ng t
o cont
r
i
but
i
ons f
r
om equi
t
y
par
t
i
ci
pant
s.
egsal
es,
ser
v
i
cei
ncome
EXPENSES.Decr
easesi
neconomi
cbenef
i
t
sdur
i
ngt
heaccount
i
ngper
i
odi
nt
hef
or
m
ofout
f
l
ows ordepl
et
i
ons ofasset
s ori
ncur
r
ences ofl
i
abi
l
i
t
i
es t
hatr
esul
ti
n
decr
easesi
nequi
t
y
,
ot
hert
hant
hoser
el
at
i
ngt
odi
st
r
i
but
i
onst
oequi
t
ypar
t
i
ci
pant
s.
eg
sal
ar
yexpense,
r
entexpenseset
c
Ot
herr
el
at
eddef
i
ni
t
i
on
 Account
sr
ecei
v
abl
ei
smoneyt
obecol
l
ect
edi
nt
hef
ut
ur
e.I
ti
sanassett
hat
ar
i
sesf
r
om t
hesel
l
ofgoodsandser
v
i
cesoncr
edi
tbasi
soronaccount
.
 Accountpay
abl
ei
smoneyt
obepai
di
nt
hef
ut
ur
e.I
ti
sal
i
abi
l
i
t
yt
hatar
i
sesf
r
om
pur
chasi
nggoodsorser
v
i
cesonaccountbasi
s.
 Pr
epai
dexpenses-ar
easset
swhi
chr
epr
esentconsumabl
egoodspur
chased
suchassuppl
i
es,
pr
epai
dr
ent
,
pr
epai
di
nsur
ance,
pr
epai
di
nt
er
est
 Rev
enuei
sagener
alt
er
mt
hatst
andsf
ort
heamountofchar
geagai
nstcust
omer
f
orgoodsorser
v
i
cessol
dt
ot
hem.Basedont
hesour
ceofr
ev
enue,
i
ti
scl
assi
f
i
ed
i
nt
ot
wo:Mi
scel
l
aneous Rev
enue and Pr
i
nci
palRev
enue.Rev
enue can hav
e
di
f
f
er
entnamessuchas:
1.Roy
al
t
i
es-r
ev
enuef
r
om sal
eoff
r
anchi
se
2.Far
esr
ev
enue-ar
ev
enuegener
at
edbypr
ov
i
di
ngt
r
anspor
t
at
i
onser
v
i
ce
3.Feesr
ev
enue-bypr
ov
i
di
ngpr
of
essi
onal
ser
v
i
ce
4.Sal
es-r
ev
enuef
r
om sal
esofgoodsandser
v
i
ces
5.Rentr
ev
enue-f
r
om r
ent
i
ngr
eal
est
at
eandot
herequi
pment
6.Tui
t
i
onf
ee-r
ev
enuef
r
om pr
ov
i
di
ngeducat
i
onal
ser
v
i
ce
 Neti
ncome/netpr
of
i
t
i
st
heexcessofr
ev
enueear
nedov
ert
heexpensesi
nt
he
pr
ocessofgener
at
i
ngr
ev
enue.
 Netl
oss-i
st
heexcessofexpensesov
ert
her
ev
enueear
neddur
i
ngt
heper
i
od
 I
nv
est
ment
-r
epr
esentt
hecashorot
herasset
sputi
nt
ot
hebusi
nessbyt
heowner
ofasol
epr
opr
i
et
or
shi
p
 Wi
t
hdr
awal(
dr
awi
ng)
i
st
hecashoranyassetwi
t
hdr
awn(
t
akenaway
)f
r
om t
he
busi
nessbyt
heownerf
orper
sonaluse.Wi
t
hdr
awali
sr
ecor
dedi
naccount
i
ng
r
ecor
doft
hebusi
ness.
13
1.
7.
4Account
i
ngEquat
i
onandBusi
nessTr
ansact
i
ons
Theef
f
ectofbusi
nesst
r
ansact
i
ononaccount
i
ngequat
i
oncanbedemonst
r
at
edby
t
aki
ngsomet
y
pi
cal
t
r
ansact
i
ons.
I
l
l
ust
r
at
i
on:Mr
.Har
aest
abl
i
shedaSol
ePr
opr
i
et
or
shi
pBusi
nessknownasHar
aTaxi
onAugust1,
1995anddeci
dedt
hef
i
scaly
earoft
hebusi
nesst
obef
r
om Sept
ember
1t
o August31.Dur
i
ng t
hef
i
r
stmont
h ofoper
at
i
on t
hef
ol
l
owi
ng t
r
ansact
i
ons
occur
r
ed:
August1:Har
adeposi
t
edBr300,
000i
nabankaccounti
nt
henameoft
hebusi
ness.
August2:
Theownerpur
chasedt
wot
axi
satBr100,
000eachf
ort
hebusi
ness
August4:Pur
chasedal
andasaf
ut
ur
ebui
l
di
ngsi
t
esf
orBr7,
500pai
di
ncash
August7:Pur
chasedBr850ofgasol
i
ne,
oi
l
,
andot
hersuppl
i
esonaccountpr
omi
si
ng
t
opayi
nt
hef
ut
ur
e
August10:
Pai
dcr
edi
t
or
sonaccountBr400
August15:
Har
aTaxi
ear
nedf
ar
esr
ev
enueofBr4,
500r
ecei
v
i
ngt
heamounti
ncash.
August21:
Thebusi
nesspai
dt
hef
ol
l
owi
ngexpensesi
ncash:
 Wagesexpense
Br1,
200
 Rentexpense
850
 Ut
i
l
i
t
i
esexpense
150
 Mi
scel
l
aneousexpense
200
August23:Thebusi
nesschar
gedcust
omer
sf
ort
het
r
anspor
t
at
i
onser
v
i
cepr
ov
i
ded
onaccountBr2,
000
August28:
Recei
v
edcashf
r
om cust
omer
sonaccountBr1,
500
August30:
Mr
.Har
awi
t
hdr
awnBr1,
000f
r
om t
hebusi
nessi
ncashf
orper
sonal
use
August31:Att
heendoft
hemont
ht
hecostofsuppl
i
esl
ef
tonhandi
sBr50
I
nst
r
uct
i
ons:
1)I
ndi
cat
e(
show)t
heef
f
ectofeachoft
heabov
et
r
ansact
i
onsonaccount
i
ng
equat
i
on
2)Pr
epar
et
heaccount
i
ngst
at
ement
s
Asset
s
Dat
e
August1,
Cash
+300,
00
0
Bal
ance
300,
000
Account
s
Recei
v
abl
es Suppl
i
es
=
Taxi
Land
Li
abi
l
i
t
i
es+Capi
t
al
Account
s
Owner
'
s
= Pay
abl
es Equi
t
y
300,
000
=
300,
000
14
August2, 200,
00
Bal
ance
+200,
000
200,
000
100,
000
August4, 75,
000
Bal
ance
25,
000
August7,
Bal
ance
25,
000
August10,
400
Bal
ance
24,
600
August15, +4,
500
Bal
ance
29,
100
August21, 2,
400
Bal
ance
August23,
Bal
ance
August28,
Bal
ance
August30,
Bal
ance
August31,
Bal
ance
26,
700
26,
700
+1,
500
28,
200
1,
000
27,
200
_
_
_
_
_
_
27,
200
+850
850
=
+75,
00
0
200,
000 75,
000 =
300,
000
300,
000
850
200,
000 75,
000 =
+850
850
400
450
850
200,
000 75,
000 =
450
850
200,
000 75,
000 =
450
850
200,
000 75,
000 =
450
850
200,
000 75,
000 =
450
500
_
_
_
_
_
850
800
200,
000 75,
000 =
_
_
_
_
_
_
_
_
_
_
450
_
_
_
_
304,
100
1,
000 Wi
t
hdr
awal
303,
100
800 S.
Expense
500
50
200,
000 75,
000 =
450
302,
300
+2,
000
2,
000
1,
500
500
200,
000 75,
000 =
300,
000
300,
000
+4,
500
304,
500
1,
200
850
200
150
302,
100
+2,
000
304,
100
F.
Rev
enue
W.
Expense
W.
Expense
W.
Expense
W.
Expense
F.
Rev
enue
1.
8) Account
i
ng(
Fi
nanci
al
)St
at
ement
s
Account
i
ng st
at
ement
s ar
e di
f
f
er
entsummar
i
es t
hatcommuni
cat
e account
i
ng
i
nf
or
mat
i
onofabusi
nesst
ouser
s.Andi
ncl
ude:
 I
ncomest
at
ement
 St
at
ementofowner
’
sequi
t
y
 Bal
ancesheet
 Cashf
l
owst
at
ement
Fi
nanci
al
st
at
ement
sar
ei
dent
i
f
i
edbyt
hr
eeheadi
ngs:
 Thenameoft
hebusi
ness
 Thet
i
t
l
eoft
hest
at
ement
 Thespeci
f
i
cdat
eorper
i
od
1.I
ncomeSt
at
ement
Thi
sst
at
ementi
sasummar
yofr
ev
enuesandexpensesf
ort
hespeci
f
i
cper
i
odof
t
i
me.Thepr
ocedur
ei
st
het
ot
alexpensesar
ededuct
edf
r
om t
het
ot
alofr
ev
enuest
o
det
er
mi
nenetl
ossorneti
ncome.Forexampl
e,
i
ncomest
at
ementf
orHar
aTaxi
Har
aTaxi
I
ncomeSt
at
ement
Fort
heYearEndedAugust31,
1995
Far
esRev
enue
Br6,
500
Less:
Expenses
15
WagesExpense
RentExpense
Ut
i
l
i
t
i
esExpense
Suppl
i
esExpense
Mi
scel
l
aneousExpense
Tot
al
Expense
NetI
ncome
1,
20
0
850
200
800
150
(
3,
200)
Br3,
300
2.Capi
t
al
St
at
ement(
St
at
ementOfOwner
’
sEqui
t
y
)
Thi
sst
at
ementi
sasummar
ywhi
chshowschangei
nowner
’
sequi
t
yorcapi
t
al
.For
Har
aTaxi
t
hecapi
t
al
st
at
ementi
sasf
ol
l
ows:
Har
aTaxi
St
at
ementofOwner
’
sEqui
t
y
Fort
heper
i
odendedAugust31,
1995
Har
aCapi
t
al
,
August1,
1995
Br
200,
000
Add:
Addi
t
i
onal
I
nv
est
ment
Br
100,
000
Add:
NetI
ncome
3,
300
Less:
Wi
t
hdr
awal
(
1,
000)
NetI
ncr
easeI
nCapi
t
al
102,
300
Har
aCapi
t
al
,
August31,
1995
Br
302,
300
3.BALANCESHEET
Bal
anceSheeti
sast
at
ementt
hatshowst
hef
i
nanci
alposi
t
i
onofabusi
nessona
speci
f
i
cdat
e.I
tl
i
st
sAsset
s,Li
abi
l
i
t
i
esandCapi
t
alonanyspeci
f
i
cdat
e,whi
chi
st
he
l
astdat
eoft
heaccount
i
ngper
i
od.
Har
aTaxi
Bal
anceSheet
August31,
1995
Asset
s:
I
nBi
r
r Li
abi
l
i
t
i
esandCapi
t
al I
nBi
r
r
Cash
27,
200 Li
abi
l
i
t
i
es:
A/
Recei
v
abl
es
500 A/
Pay
abl
es
450
Suppl
i
es
50
Land
75,
000 Capi
t
al
:
Taxi
200,
00 Har
a,
Capi
t
al
302,
30
0
0
Tot
al
Asset
s
302,
75 Tot
al
l
i
abi
l
i
t
i
es+OE
302,
75
0
0
4.CashFl
owsSt
at
ement
Cashf
l
owsst
at
ementi
sasummar
yofcashi
nf
l
ows(
Cashr
ecei
pt
s)andCash
out
f
l
ows(
Cash pay
ment
s)f
oraspeci
f
i
cper
i
od oft
i
me.I
ti
sr
epor
t
ed i
nt
hr
ee
sect
i
ons:
16
 Cashf
l
owsf
r
om oper
at
i
ngact
i
v
i
t
i
es
 Cashf
l
owsf
r
om i
nv
est
i
ngact
i
v
i
t
i
es
 Cashf
l
owsf
or
mf
i
nanci
ngact
i
v
i
t
i
es
Har
aTaxi
St
at
ementofCashFl
ows
Fort
heYearendedAugust31,
1995
CashFl
owsFr
om Oper
at
i
ngAct
i
v
i
t
i
es:
Cashi
nf
l
owf
r
om r
ev
enue
6,
000
Cashout
f
l
owf
orexpense
(
2,
800)
Netcashf
l
owsf
r
om oper
at
i
ngact
i
v
i
t
i
es
3,
200
CashFl
owsFr
om I
nv
est
i
ngAct
i
v
i
t
i
es:
Cashi
nf
l
owf
r
om i
nv
est
i
ng
0.
00
Cashout
f
l
owf
ori
nv
est
i
ng
(
75,
000
)
Netcashf
l
owsf
r
om i
nv
est
i
ngact
i
v
i
t
i
es
(
75,
000)
CashFl
owsFr
om Fi
nanci
ngAct
i
v
i
t
i
es:
Cashi
nf
l
owf
r
om f
i
nanci
ng
100,
000
Cashout
f
l
owf
r
om f
i
nanci
ng
(
1,
000)
Netcashf
l
owsf
r
om f
i
nanci
ngact
i
v
i
t
i
es
99,
000
CashBal
anceonAugust31,
1995
Br27,
200
17
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Chapt
erTwo
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
2.
1 Nat
ur
eandCl
assi
f
i
cat
i
onofAccount
s
2.
1.
1.Nat
ur
eofAccount
s
The si
mpl
estway ofpr
ov
i
di
ng account
i
ng i
nf
or
mat
i
on orpr
epar
i
ng f
i
nanci
al
st
at
ement
si
st
or
ecor
dandsummar
i
zet
r
ansact
i
onsont
heaccount
i
ngequat
i
on
f
or
mat
.Howev
er
,t
hi
sf
or
mati
s awkwar
d and cumber
some f
orr
ecor
di
ng and
anal
y
zi
ngt
ent
housandsoft
r
ansact
i
onst
opr
ov
i
dei
nf
or
mat
i
on.Thus,account
ant
s
accumul
at
et
heef
f
ect
sofi
ndi
v
i
dualt
r
ansact
i
ononasepar
at
er
ecor
df
oreachi
t
em
t
omeett
hegoalofpr
ov
i
di
ngi
nf
or
mat
i
on.Thesesepar
at
er
ecor
dsshowi
ncr
easesi
n
t
hei
t
em,decr
easesi
ni
t
em andbal
ancei
ni
t
em.Thet
y
peofsepar
at
er
ecor
dsused
f
ort
hepur
poseofr
ecor
di
ngal
lt
r
ansact
i
onsr
el
at
edt
oi
ndi
v
i
duali
t
em i
scal
l
edAn
Account
.Agr
oupofaccount
si
scal
l
edl
edger
.Thesi
mpl
estf
or
m ofanaccounthas
t
hr
eepar
t
s:
 Ti
t
l
e-t
heaccountname
 Aspacef
orr
ecor
di
ngt
heamountofi
ncr
easesi
ni
t
em i
nt
er
msofmoney
 Aspacef
orr
ecor
di
ngt
heamountofdecr
easesi
ni
t
em i
nt
er
msofmoney
The l
ef
tsi
de ofan accounti
scal
l
ed Debi
tSi
de and t
he wor
d“
Char
ge”
somet
i
mesusedasasy
nony
mf
ordebi
t
.Amount
sent
er
edi
nt
hel
ef
tsi
deofan
accountr
egar
dl
essoft
heaccountt
i
t
l
ear
ecal
l
eddebi
tandt
heaccounti
ssai
dt
obe
debi
t
ed.Ther
i
ghtsi
deofanaccounti
scal
l
edcr
edi
tsi
deandt
heamountent
er
edi
n
t
her
i
ghtsi
deofanaccounti
sal
socal
l
edcr
edi
tandt
heaccounti
ssai
dt
obecr
edi
t
ed.
2.
1.
1.
2
.Gener
alRul
esofDebi
tandCr
edi
tf
orAccount
s
 Asset
st
he i
ncr
easi
ng si
de ofal
lasset
s accounti
st
he debi
tsi
de and t
he
decr
easei
st
hecr
edi
tsi
de.
 Li
abi
l
i
t
i
est
hei
ncr
easesi
deofal
ll
i
abi
l
i
t
i
esi
st
hecr
edi
tsi
deandt
hedecr
easi
ng
si
dei
st
hedebi
tsi
de.
 Capi
t
alt
hei
ncr
easesi
deofcapi
t
alaccounti
st
hecr
edi
tsi
deandt
hedecr
easi
ng
si
dei
st
hedebi
tsi
de.
 Rev
enue-t
hei
ncr
easesi
deofal
lRev
enueaccount
si
st
hecr
edi
tsi
deandt
he
decr
easi
ngsi
dei
st
hedebi
tsi
de.
 Expensest
hei
ncr
easi
ngsi
deofal
lexpensesaccounti
st
hedebi
tsi
deandt
he
decr
easei
st
hecr
edi
tsi
de.
 Dr
awi
ng-t
hei
ncr
easi
ngsi
dedr
awi
ngi
st
hedebi
tsi
deandt
hedecr
easesi
dei
st
he
cr
edi
tsi
de.
2.
1.
1.
2.Nor
malBal
anceofAccount
s
Thesum ofi
ncr
easesr
ecor
dedi
nanaccounti
susual
l
ygr
eat
ert
hanorequalt
ot
he
sum ofdecr
easesr
ecor
dedi
nanaccount
.Fort
hi
sr
eason,t
henor
malbal
anceofal
l
account
si
sposi
t
i
v
er
at
hert
hannegat
i
v
e.Thus,
t
henor
malbal
anceofanyaccounti
s
t
hei
ncr
easi
ngsi
de.Summar
i
esRul
esofDebi
tandCr
edi
twi
t
hnor
malbal
ancesof
18
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
account
s
I
t
ems
I
ncr
easi
ng
Si
de
Asset
s
Debi
t
Li
abi
l
i
t
i
es
Cr
edi
t
Capi
t
al
Cr
edi
t
Dr
awi
ng
Debi
t
Rev
enues
Debi
t
Expenses
Debi
t
2.
1.
1.
3
Decr
easi
ngSi
de Nor
malBal
ance
Cr
edi
t
Debi
t
Debi
t
Cr
edi
t
Cr
edi
t
Cr
edi
t
Debi
t
Cr
edi
t
Cr
edi
t
Debi
t
Debi
t
Debi
t
Cl
assi
f
i
cat
i
onOfAccount
s
Account
si
nal
edgerar
ecl
assi
f
i
edbasedoncommonchar
act
er
i
st
i
csasabal
ance
sheetaccount
sori
ncomest
at
ementaccount
s
Bal
anceSheetAccount
s
Bal
anceSheetAccount
sf
ur
t
hercl
assi
f
i
edi
nt
ot
hr
eeandar
el
i
st
edi
nt
hel
edgeri
nt
he
or
derofAsset
s,
Li
abi
l
i
t
yandOwner
sEqui
t
y
A)Asset
sasset
sar
ecl
assi
f
i
edi
nt
het
wogr
oupsascur
r
entasset
sandpl
antasset
s
1.Cur
r
entAsset
sar
eanyasset
st
hatmayr
easonabl
yber
eal
i
zedi
ncashorsol
dor
consumedwi
t
hi
ny
earorl
essper
i
od.Forexampl
e:Cash,Account
sRecei
v
abl
e,
suppl
i
es,
commodi
t
i
es
2.Pl
antAsset
st
hesear
eusedi
nt
hebusi
nessoper
at
i
onsandar
eofper
manent
nat
ur
e.Forexampl
eEqui
pment
s,
machi
ner
y
,
bui
l
di
ng,
f
ur
ni
t
ur
e,
l
and,
et
c
B)Li
abi
l
i
t
y
-t
het
wocat
egor
i
esoccur
r
i
ngmostf
r
equent
l
yar
e:
1.Cur
r
entl
i
abi
l
i
t
i
es-ar
el
i
abi
l
i
t
i
est
hatwi
l
lbeduewi
t
hi
nshor
tper
i
odoft
i
meusual
l
y
ay
earorl
esst
hathav
et
obepai
doutcur
r
entasset
.Forexampl
e:sal
ar
ypay
abl
e,
i
nt
er
estpay
abl
e,
t
axpay
abl
e,
andaccount
spay
abl
e
2.Long t
er
m l
i
abi
l
i
t
i
es-ar
el
i
abi
l
i
t
i
est
hatwi
l
lnotbe pai
d ordue ormat
ur
ed
compar
at
i
v
el
yf
orl
ongper
i
odoft
i
meusual
l
ymor
et
hanoney
ear
.Forexampl
e
mor
t
gagepay
abl
e,
not
espay
abl
e
C)Owner
’
sEqui
t
y
i
sar
esi
dualcl
ai
m agai
nstt
heassetoft
hebusi
nessaf
t
erl
i
abi
l
i
t
y
i
sf
ul
l
ydeduct
ed.Foracor
por
at
i
onowner
s’equi
t
yi
scal
l
edst
ockhol
der
’
sequi
t
y
.
Dr
awi
ngr
epr
esent
st
heamountofcashorot
herasset
st
akenoutoft
hebusi
ness
f
orper
sonal
useandi
ti
soneoft
hecapi
t
al
account
s.
I
ncomeSt
at
ementAccount
s
I
ncomeSt
at
ementAccount
sar
ecl
assi
f
i
edi
nt
ot
hr
eeandar
el
i
st
edi
nt
heor
derof
r
ev
enuef
i
r
standexpensesecond.
Rev
enuei
si
ncr
easei
ncapi
t
al
bygr
ossamountasar
esul
tof
:
 Sal
eofgoodsandser
v
i
ce
 Rent
i
ngr
eal
est
at
eandot
herpr
oper
t
i
es
 Pr
ov
i
di
ngpr
of
essi
onal
ser
v
i
ce
19
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
 Sal
eofasset
s
Expenses–r
epr
esentdecr
easi
ngi
ncapi
t
albygr
ossamountasar
esul
tofbusi
ness
oper
at
i
on.Thati
sasar
esul
tofconsumi
ngasset
sorusi
ngupofser
v
i
ces.
3.
1) Char
tofAccount
s
Account
sar
esequent
i
al
l
yar
r
angedandgi
v
ennumberf
oruseasr
ef
er
ences.Thel
i
st
ofaccount
sal
ongwi
t
ht
hei
rnumber
sshowi
ngt
hesequenceofaccounti
nt
hel
edger
i
scal
l
edChar
tofAccount
s.Accor
di
ngt
ot
hei
ror
deri
nt
hef
i
nanci
alst
at
ement
s
assetcomesf
i
r
standt
henf
ol
l
owedbyl
i
abi
l
i
t
i
es,capi
t
al
,r
ev
enuesandexpenses.
Thechar
tofaccountofEt
hi
oMobi
l
eMai
nt
enancewhi
chi
sownedbyAt
oSamuel
and
managedbyhi
swi
f
eW/
oEt
hi
opi
ai
sf
ol
l
ows:
1.Asset
s
Cash
11
Account
sRecei
v
abl
es
12
Suppl
i
es
13
Pr
epai
dI
nsur
ance
14
Of
f
i
ceEqui
pment
17
Land
19
2.Li
abi
l
i
t
i
es
Account
sPay
abl
e
21
Unear
nedRev
enue
23
3.Capi
t
al
Samuel
,
Capi
t
al
31
Samuel
,
Dr
awi
ng
32
I
ncomeSummar
y
33
4.Rev
enues
FeesRev
enue
41
RentI
ncome
42
5.Expenses
Sal
ar
yExpenses
51
RentExpense
52
Suppl
i
esExpense
53
Ut
i
l
i
t
i
esExpense
54
Mi
scel
l
aneousExpense
59
Not
e:Af
l
exi
bl
esy
st
em ofnumber
i
ngi
sdesi
r
ed.Suchsy
st
em hast
headv
ant
ageof
per
mi
t
t
i
ng oft
hel
at
eri
nser
t
i
onnew account
swi
t
houtdi
st
ur
bi
ng ot
heraccount
number
.I
nt
heabov
echar
tofaccount
scer
t
ai
nnumber
s(
15,16,18,and22,5558)
hav
enotbeenassi
gned.Thesenumber
sar
ehel
di
nr
eser
v
eso t
hataddi
t
i
onal
account
scanbei
nser
t
edi
nt
hel
edgeri
npr
opersequencewhenev
ersuchaccount
s
become necessar
y
.The numberofdi
gi
t
s gi
v
en mayv
ar
yf
r
om 2 t
o 30 di
gi
t
s
dependi
ngupont
hesi
zeandnat
ur
eoft
hebusi
ness.I
nt
heabov
echar
tofaccount
s,
2di
gi
t
sar
eassi
gned.Thef
i
r
stdi
gi
tshowst
hedi
v
i
si
onoft
hei
t
em i
nt
hel
edgerand
t
heseconddi
gi
ti
ndi
cat
est
heposi
t
i
onoft
hei
t
em i
nt
hedi
v
i
si
on.
3.
2) Fl
owofAccount
i
ngDat
a
20
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Thef
l
owofaccount
i
ngdat
af
r
om t
het
i
meat
r
ansact
i
onoccur
st
oi
t
sr
ecor
di
ngi
nt
he
l
edgeri
sdi
agr
ammedasf
ol
l
ows:
Tr
ansact
i
on
Occur
s
Document
Pr
epar
ed
Tr
ansact
i
on
Anal
y
zed
Tr
ansact
i
on
Recor
ded
Tr
ansact
i
on
Post
ed
1.Tr
ansact
i
on Occur
s– t
her
emustbebusi
nesst
r
ansact
i
on,bei
ti
nt
er
nalor
ext
er
nal
,
t
oi
ni
t
i
at
et
hef
l
owofAccount
i
ngDat
a.
2.DocumentPr
epar
ed–I
fi
ti
sext
er
nalt
r
ansact
i
oni
tmustbesuppor
t
edbyt
he
necessar
ysour
cedocument
s.
3.Anal
y
zi
ngTr
ansact
i
on
Anal
y
si
sofat
r
ansact
i
oni
sat
hr
eest
epspr
ocedur
e:
 Det
er
mi
ni
ngt
heaccount
saf
f
ect
edbyt
het
r
ansact
i
on
 Det
er
mi
ni
ngt
heef
f
ectofat
r
ansact
i
onasi
ncr
easesanddecr
eases
 Anal
y
zi
ngt
hei
ncr
easesanddecr
easesasDebi
tandCr
edi
t
Exampl
e:
TheownerofJJAr
t
sCl
ubi
nv
est
edBr20,
000onJanuar
y1,
2005
 Theaccount
saf
f
ect
edar
eCash(
Asset
)andCapi
t
al
(
Owner
’
sEqui
t
y
)
 Cashi
ncr
easesandCapi
t
al
al
soi
ncr
easesbyBr20000
 Cashi
ncr
easesi
sDebi
tandCapi
t
al
i
ncr
easesi
sCr
edi
t
JJAr
t
sCl
ubpur
chasedel
ect
r
i
cgui
t
arf
orBr8,
200i
nCashonJanuar
y10,
2005
 Theaccount
saf
f
ect
edar
eCashandEqui
pment
 Cashdecr
easesandEqui
pmenti
ncr
easesbyBr8200
 Cashdecr
easesi
sdebi
tandEqui
pmenti
ncr
easesi
sCr
edi
t
4.Recor
di
ngTr
ansact
i
oni
naJour
nal
Af
t
eranal
y
zi
ngt
r
ansact
i
ons,t
heyar
er
ecor
dedi
nabookcal
l
edj
our
nali
nanor
der
l
y
manner
.Jour
nal
pr
ov
i
desf
ort
r
ansact
i
ons:
 Per
manency
i
ti
sper
manentr
ecor
doft
r
ansact
i
onsf
orr
ef
er
ence
 Or
der
l
i
nessorchr
onol
ogy
t
r
ansact
i
onsar
er
ecor
dedsequent
i
al
l
y
 Accur
acy orAppr
ov
al
-bef
or
et
r
ansact
i
ons ar
er
ecor
ded i
nt
hei
raccount
appr
ov
al
wi
l
l
bemade
Ther
ear
et
wot
y
pesofj
our
nal
s:
Gener
alJour
nal
-i
saj
our
nal
onwhi
chanyt
y
peoft
r
ansact
i
oni
sr
ecor
dedupon.
Speci
alj
our
nal
-t
hi
si
saj
our
nalonwhi
chonet
y
peoft
r
ansact
i
onwi
t
hr
ecur
r
ent
nat
ur
ei
sr
ecor
dedupon.
Thepr
ocessofr
ecor
di
ngt
r
ansact
i
oni
naj
our
nali
scal
l
edj
our
nal
i
zi
ngandt
hest
eps
i
nj
our
nal
i
zi
ngar
easf
ol
l
ows:
St
ep1:Recor
di
ngt
heDat
e
 I
nser
t
i
ngt
hey
ear
 I
nser
t
i
ngt
hemont
h
 I
nser
t
i
ngt
hedat
e
St
ep2:Recor
di
ngt
heaccountt
i
t
l
et
obedebi
t
edatt
heext
r
emel
ef
toft
hedescr
i
pt
i
on
col
umnoft
heGener
al
Jour
nal
andent
ert
heamountofdebi
t
St
ep3:Recor
di
ng t
he accountt
i
t
l
et
o be cr
edi
t
ed j
ustbel
ow t
he debi
tent
r
y
moder
at
el
yi
ndent
edandent
ert
hecr
edi
tamount
St
ep4:Wr
i
t
i
nganexpl
anat
i
on
Wr
i
t
eanexpl
anat
i
onf
oreacht
r
ansact
i
onorr
epl
acei
twi
t
hi
t
ssour
cedocument
numberi
fi
ti
ssel
fexpl
anat
or
yt
r
ansact
i
on.Theabov
et
woanal
y
zedt
r
ansact
i
onsar
e
21
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
r
ecor
dedi
nt
heGener
al
Jour
nal
asf
ol
l
ows:
Page
5
Gener
alJour
nal
Dat
e
Descr
i
pt
i
on
2005
Januar
y
,
1
Cash
Capi
t
al
I
nv
est
mentbyt
heowner
10 Equi
pment
Cash
Pur
chase
Equi
pment
P/
R Debi
t Cr
edi
t
20000
8200
of
20000
8200
5.Post
i
ngaTr
ansact
i
on
Thepr
ocessi
ngoft
r
ansf
er
r
i
ngat
r
ansact
i
ont
ol
edgeraccount
si
scal
l
edpost
i
ng.
Ther
ear
edi
f
f
er
entt
y
pesofaccount
s:
 Taccount
swhi
chr
esembl
esacapi
t
al
l
et
t
er“
T”
 Twocol
umnaccountwhi
chconsi
st
soft
wodat
e,postr
ef
er
enci
ng,debi
tand
cr
edi
tcol
umns
 Fourcol
umnaccountwhi
chconsi
st
sofonedat
e,
onepostr
ef
er
enci
ng,
onedebi
t
,
onecr
edi
tandonedebi
tandcr
edi
tunderbal
ancecol
umn
 Thr
eecol
umnaccountwhi
chconsi
st
sofonedat
e,
onepostr
ef
er
enci
ng,
onedebi
t
,
onecr
edi
tandonebal
ancecol
umn.Theabnor
mal
bal
ancei
sshowni
nbr
acket
.
Thest
epsi
npost
i
ngar
e:
St
ep1:Recor
dt
hedat
eandPostt
hedebi
tort
hecr
edi
t
St
ep2:I
nser
tj
our
nal
pagenumber
si
nt
hepostr
ef
er
encecol
umnofl
edgeraccount
s
St
ep3:I
nser
tAccountnumber
si
nt
hepostr
ef
er
encecol
umnofGener
al
Jour
nal
AccountCash
AccountNo
11
I
t
e P/
Cr
edi Bal
anc
Dat
e
m
R Debi
t t
e
2005
2000
Jan.1
0
20000
10
8200 11800
I
l
l
ust
r
at
i
ononJour
nal
i
zi
ngandPost
i
ng
Thef
ol
l
owi
ngt
r
ansact
i
onsar
er
el
at
edt
oEt
hi
oMobi
l
eMai
nt
enance(
EMM)whi
chi
sowned
byAt
oSamuel
,
f
ort
hef
i
r
stmont
hoper
at
i
onendedDecember31,
2004
December1:Thef
ol
l
owi
ngasset
swer
ei
nv
est
edt
ot
hebusi
ness:
Cash
Br5,
900.
00
22
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Suppl
i
es
Land
Thel
i
abi
l
i
t
i
est
r
ansf
er
r
edt
ot
hebusi
nesswas
550.
00
10,
000.
00
400.
00
December1:EMM pai
dapr
emi
um ofBr2,
400f
oracompr
ehensi
v
ei
nsur
ancepol
i
cy
whi
chwi
l
l
cov
era2y
ear
sper
i
od
December1:EMM r
ecei
v
edBr720f
orr
ent
i
ngt
hel
andf
or3mont
hs
December2:EMM pai
dBr800f
ort
her
entoft
hemont
hDecember
.
December5:EMM Pur
chasedOf
f
i
ceEqui
pmentonaccountBr7,
000
December7:EMM pai
dBr180f
oradai
l
ynewspaper
December11:
EMM pai
dBr400t
ocr
edi
t
or
s
December13:EMM pai
dr
ecept
i
oni
standpar
t
t
i
meassi
st
antBr1,
250f
ort
woweeks
sal
ar
y
December16:EMM r
ecei
v
edBr5,
000f
r
om r
ev
enuesear
nedf
ort
he1sthal
foft
he
mont
h
December16:
f
eesr
ev
enueonaccountt
ot
al
edBr1,
750f
or1sthal
foft
hemont
h
December20:EMM pai
dBr3,
500t
ocr
edi
t
or
sont
heBr7000debtowedf
r
om t
he
December4t
r
ansact
i
on
December23:EMM Recei
v
edBr1,
150f
r
om cust
omer
si
npay
mentoft
hei
raccount
s
December25:
EMM pur
chasedsuppl
i
esf
orBr1,
450i
ncash
December27:EMM pai
dr
ecept
i
oni
standpar
t
t
i
meassi
st
antBr1,
250f
ort
woweeks
sal
ar
y
December31:EMM pai
dBr310andBr240t
el
ephoneandel
ect
r
i
cbi
l
lf
ort
hemont
h,
r
espect
i
v
el
y
December31:EMM r
ecei
v
edBr2,
750f
r
om r
ev
enueear
nedf
ort
hesecondhal
foft
he
mont
h
December31:f
eesr
ev
enueear
nedonaccountt
ot
al
edBr1,
200f
ort
hesecondhal
f
oft
hemont
h
December31:t
heownerwi
t
hdr
ewBr1,
000f
orhi
sper
sonal
use
I
nst
r
uct
i
ons:Ana
l
y
zeandJour
nal
i
zet
het
r
ansact
i
onf
ort
hemont
hDecember2005i
n
t
wocol
umnj
our
nalassumi
ngt
hatt
hepol
i
cyoft
hecompanyi
st
or
ecor
dmoneypai
d
f
ort
el
ephone,
el
ect
r
i
candwat
erasut
i
l
i
t
i
esexpenseandf
oradv
er
t
i
si
ng,
post
ageand
st
ampandnewspaperasmi
scel
l
aneousexpense.Postent
r
i
esf
r
om j
our
nal
t
ol
edger
account
susi
ngaf
ourort
hr
eecol
umnl
edgeraccount
Jour
nal
i
zi
ng:Recor
di
ngTr
ansact
i
onsi
nGener
alJour
nal(
Assumet
r
ansact
i
ons
f
r
om Dec.
1t
o15andDec.
16t
o31ar
er
ecor
dedonpage1and2,
r
espect
i
v
el
y
)
Gener
al
Jour
nal
Dat
e
2005
Dec.1
Descr
i
pt
i
on
Cash
Suppl
i
es
Land
Account
sPay
abl
e
Samuel
,
Capi
t
al
P/
R
Page1
Debi
t Cr
edi
t
5,
900
550
10,
000
400
16,
050
23
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
i
nv
est
mentbyt
heowner
1
Pr
epai
dI
nsur
ance
Cash
2,
400
1
Cash
Unear
nedRent
720
2
RentExpense
Cash
800
5
Of
f
i
ceEqui
pment
Account
sPay
abl
e
800
7,
000
Mi
scel
l
aneousExpense
Cash
180
11
Account
sPay
abl
e
Cash
400
13
Sal
ar
yExpense
Cash
1,
250
Tr
ansact
i
onsf
r
om December16t
o31,
2005
Dat
e Descr
i
pt
i
on
2005
Dec.16 Cash
Ser
v
i
ceRev
enue
720
7,
000
7
Gener
al
Jour
nal
2,
400
P/
R
180
400
1,
250
Page2
Debi
t Cr
edi
t
5,
000
16
FeesRecei
v
abl
es
Ser
v
i
ceRev
enue
1,
750
20
Account
sPay
abl
e
Cash
3,
500
23
Cash
FeesRecei
v
abl
es
1,
150
25
Suppl
i
es
Cash
1,
450
27
Sal
ar
yExpense
Cash
1,
250
5,
000
1,
750
3,
500
1,
150
1,
450
1,
250
Ut
i
l
i
t
i
esExpense
31
550
24
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Cash
550
31
Cash
Ser
v
i
ceRev
enue
2,
750
31
FeesRecei
v
abl
es
Ser
v
i
ceRev
enue
1,
200
31
Samuel
,
Dr
awi
ng
Cash
1,
000
2,
750
1,
200
1,
000
Post
i
ng:
Tr
ansf
er
r
i
ngt
r
ansact
i
onsf
r
om Gener
alJour
nal
t
ol
edgeraccount
s
Account
:Cash
Dat
e
I
t
em
2004
Dec.
1
P/
R
AccountNo.11
Debi
t Cr
edi
t Bal
ance
5,
900
720
5000
1150
2750
CashAccounthasadebi
tbal
anceofBr2,
740.
Account
:Account
s
Recei
v
abl
es
Dat
e I
t
em P/
R
2004
Dec.
1
2,
400
800
180
400
1250
3500
1450
1250
550
1000
5,
900
3,
500
4,
220
3,
420
3,
240
2,
840
1,
590
6,
590
3,
090
4,
240
2,
790
1,
540
990
3,
740
2,
740
AccountNo.12
Debi
t Cr
edi
t Bal
ance
1,
750
1,
150
1,
200
1,
750
600
1,
800
Account
sRecei
v
abl
esGener
al
LedgerAccounthasadebi
tbal
anceofBr1,
800
Account
:Suppl
i
es
Dat
e I
t
em P/
R
2004
Dec.1
AccountNo.
13
Debi
t Cr
edi
t Bal
ance
550
1,
450
550
2,
000
Suppl
i
esGener
al
LedgerAccounthasadebi
tbal
anceofBr2,
000
Account
:Pr
epai
dI
nsur
ance
AccountNo.14
25
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Dat
e
2004
Dec.1
I
t
em
P/
R
Debi
t Cr
edi
t
2,
400
Bal
ance
2,
400
Pr
epai
dI
nsur
anceGener
al
LedgerAccounthasadebi
tbal
anceofBr2,
400
Account
:Equi
pment
Dat
e
I
t
em P/
R
2004
Dec.5
AccountNo.15
Debi
t Cr
edi
t Bal
ance
7,
000
7,
000
Equi
pmentGener
al
LedgerAccounthasadebi
tbal
anceofBr7,
000
Account
:
Depr
eci
at
i
on
Dat
e
I
t
em
2004
Accumul
at
ed
P/
R
Debi
t
AccountNo.16
Cr
edi
t Bal
ance
Not
r
ansact
i
oni
spost
edt
oAccumul
at
edDepr
eci
at
i
onGener
al
LedgerAccountsof
ar
.
Account
:Land
Dat
e
I
t
em
2004
Dec.1
P/
R
AccountNo.
Debi
t Cr
edi
t Bal
ance
10,
00
0
10,
000
LandGener
al
LedgerAccounthasadebi
tbal
anceofBr10,
000
Account
:Account
sPay
abl
e
AccountNo.21
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.1
400
400
7,
000
7,
400
400
7,
000
3,
500
3,
500
Account
sPay
abl
eGener
al
LedgerAccounthasacr
edi
tbal
anceofBr3,
500
Account
:Unear
nedRent
AccountNo.23
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.1
720
720
Unear
nedRentGener
al
LedgerAccounthasacr
edi
tbal
anceofBr2,
400
Account
:SamuelCapi
t
al
AccountNo.31
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
26
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Dec.
Samuel
Capi
t
al
Gener
al
LedgerAccounthasacr
edi
tbal
anceofBr
Account
:Samuel
Dr
awi
ng
AccountNo32
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
Samuel
Dr
awi
ngGener
al
LedgerAccounthasadebi
tbal
anceofBr
Account
:I
ncomeSummar
y
AccountNo33
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
Not
r
ansact
i
oni
spost
edt
oI
ncomeSummar
yGener
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LedgerAccount
Account
:Ser
v
i
ceRev
enue
AccountNo.41
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
Ser
v
i
ceRev
enueGener
al
LedgerAccounthasaCr
edi
tbal
anceofBr
Account
:RentI
ncome
AccountNo.42
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
NoTr
ansact
i
oni
spost
edt
oRentI
ncomeGener
al
LedgerAccount
Account
:Sal
ar
yExpense
AccountNo51
Dat
e
I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
27
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Sal
ar
yExpenseGener
al
LedgerAccounthasadebi
tbal
anceofBr
Account
:Suppl
i
esExpense
AccountNo.53
Dat
e
I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
Suppl
i
esExpenseGener
al
LedgerAccounthasadebi
tbal
anceofBr
Account
:RentExpense
AccountNo.
56
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
RentExpenseGener
al
LedgerAccounthasadebi
tbal
anceofBr
Account
:Ut
i
l
i
t
i
esExpense
AccountNo52
Dat
e
I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
Ut
i
l
i
t
i
esExpenseGener
al
LedgerAccounthasadebi
tbal
anceofBr
Account
:
Expense
Dat
e I
t
em
2004
Dec.
Mi
scel
l
aneous
P/
R
Debi
t
AccountNo.59
Cr
edi
t Bal
ance
Mi
scel
l
aneousExpenseGener
al
LedgerAccounthasadebi
tbal
anceofBr
Account
:
Expense
Dat
e I
t
em
2004
Dec.
Depr
eci
at
i
on
P/
R
Debi
t
AccountNo.
55
Cr
edi
t Bal
ance
28
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
NoTr
ansact
i
oni
spost
edt
oDepr
eci
at
i
onExpenseGener
al
LedgerAccount
Account
:I
nsur
anceExpense
AccountNo.54
Dat
e I
t
em P/
R Debi
t Cr
edi
t Bal
ance
2004
Dec.
I
nsur
anceExpenseGener
al
LedgerAccounthasadebi
tbal
anceofBr
3.
3) Tr
i
alBal
ance
Bef
or
epr
epar
i
ngf
i
nanci
alst
at
ement
s,t
hel
edgeraccountbal
ancesmustbepr
ov
ed
ast
ot
heequal
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t
yoft
het
ot
aldebi
tbal
ancesandt
het
ot
alcr
edi
tbal
ances.The
wor
ki
ngpaperwhi
chpr
ov
i
dest
hepr
oofoft
heequal
i
t
yofdebi
tandcr
edi
tbal
ancesi
s
cal
l
edat
r
i
albal
ance.Thet
r
i
albal
ancei
sat
wocol
umnschedul
el
i
st
i
ngt
henames
andbal
ancesofal
laccount
si
nt
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edgeri
.
e.debi
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ancesar
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i
st
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hel
ef
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handcol
umnandt
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ancesi
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i
ghthandcol
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ti
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ki
ngpaper
whi
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ulonl
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heaccount
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.I
ti
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nt
endedf
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i
but
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or
mat
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Bal
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equi
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esf
i
v
est
eps
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er
mi
net
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 Li
stt
heaccount
swi
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anceot
hert
hanzer
o,t
hedebi
t
si
nt
hel
ef
tcol
umn
andt
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si
nr
i
ghtcol
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tbal
ances
 Addcr
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ances
 Compar
et
hesum oft
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anceswi
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ht
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I
nst
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uct
i
on:Pr
epar
eaTr
i
al
Bal
ancef
orEMM
Et
hi
oMobi
l
eMai
nt
enance
Tr
i
al
Bal
ance
December31,
2004
AccountTi
t
l
e
Debi
t Cr
edi
t
Cash
2,
740
AccountRecei
v
abl
es
1,
800
Suppl
i
es
2,
000
Pr
epai
dI
nsur
ance
2,
400
Of
f
i
ceEqui
pment
7,
000
10,
00
Land
0
AccountPay
abl
es
3,
500
Unear
nedRent
720
Samuel
,
Capi
t
al
16,
050
Samuel
,
Dr
awi
ng
1,
000
Ser
v
i
ceRev
enue
10,
700
Sal
ar
yExpense
2,
500
RentExpense
800
29
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Ut
i
l
i
t
i
esExpense
Mi
scel
l
aneousExpense
Tot
al
550
180 _
_
_
_
_
30,
97
0 30,
970
UsesofaTr
i
alBal
ance
At
r
i
albal
ance pr
ov
i
desa pr
ooft
hatt
he l
edgeri
n a bal
ance and i
ti
sal
so a
cor
ner
st
onef
orpr
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i
onoff
i
nanci
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s.Thef
ol
l
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pesofer
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or
swi
l
l
causet
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wot
ot
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oft
het
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i
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bal
ancet
ounequal
.
Er
r
ori
npr
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het
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i
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bal
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umnsoft
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ect
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yadded
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ancei
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ncor
r
ect
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yr
ecor
dedont
het
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i
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ecor
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het
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torv
i
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i
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el
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ed
Er
r
ori
ndet
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mi
ni
ngt
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ncor
r
ect
l
ycomput
ed
 Abal
ancewasent
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edi
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hewr
ongbal
ancecol
umn
Er
r
ori
nr
ecor
di
ngt
r
ansact
i
oni
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hel
edgersuchas
 Aner
r
oneousamountwaspost
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heaccount
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tent
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ywaspost
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torv
i
cev
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sa
 Adebi
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tpost
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Li
mi
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at
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onsofaTr
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alBal
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Thet
r
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ansact
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i
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or
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f
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r
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 Recor
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r
ansact
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on
 Recor
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r
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on
 Post
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ect
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Di
scov
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:
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 Thr
ought
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het
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i
al
bal
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Thr
ought
hemedi
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het
r
i
albal
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i
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stdet
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mi
net
hedi
f
f
er
encebet
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he
debi
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ot
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andt
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sgi
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est
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 Adi
f
f
er
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10,
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1000i
sf
r
equent
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ori
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on
 I
fadi
f
f
er
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si
bl
eev
enl
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t
heer
r
ori
sei
t
hert
heomi
ssi
onofadebi
tor
acr
edi
tort
hepost
i
ngofdebi
tasacr
edi
torv
i
cev
er
sa
30
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
 I
ft
hedi
scr
epancyoft
het
wot
ot
al
si
sev
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heer
r
ori
sei
t
her
t
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ansposi
t
i
onsorsl
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de.
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ansposi
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i
onser
r
ori
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heer
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oneousr
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angementofdi
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s
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i
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enumberi
ser
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her
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hel
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3.
4) TheAdj
ust
i
ngPr
ocess
Rev
enuesandexpensesmi
ghtber
epor
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edont
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ncomest
at
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hecash
basi
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ualbasi
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nt
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ng,r
ev
enuesar
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n
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ecei
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edandexpensesar
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epor
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pai
d.I
ncashbasi
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smi
nuscash
pay
ment
s.Thi
s basi
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s used by v
ar
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of
essi
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v
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busi
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nt
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equi
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esadj
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Att
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t
r
ansf
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r
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houtchanget
ot
hef
i
nanci
alst
at
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s.Forexampl
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pay
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heot
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om t
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ev
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ust
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ngent
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i
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Adj
ust
i
ngent
r
i
esar
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nt
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t
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ansact
i
onsmadeatt
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i
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I
l
l
ust
r
at
i
onsofAdj
ust
i
ngEnt
r
y
1.Adj
ust
i
ngDef
er
r
edExpenses(
Pr
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dExpenses)
A)Adj
ust
i
ngSuppl
i
es
I
nat
r
i
albal
ance,t
hesuppl
i
esaccounthasabal
anceofBr
2000onDecember31,
2004.Assumi
ngt
hatt
hei
nv
ent
or
yofsuppl
i
esonDecember31,
i
sBr500,
det
er
mi
ne
t
heamountt
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r
ansf
er
r
edf
r
om assetaccount(
suppl
i
es)t
ot
heexpenseaccount
(
suppl
i
esexpense)
Suppl
i
esav
ai
l
abl
edur
i
ngt
hey
ear
Br2,
000
Suppl
i
esonhand
(
500)
Suppl
i
esused(
amountofadj
ust
ment
) 1,
500
B)Adj
ust
i
ngpr
epai
di
nsur
ance
Thebal
anceofpr
epai
di
nsur
anceaccounthasabal
anceofBr2400whi
chwaspai
d
f
or24mont
hs.Asar
esul
tev
er
ymont
hBr100i
sexpi
r
ed.Ot
herexampl
esofpr
epai
d
expensear
epr
epai
dadv
er
t
i
si
ng,
i
nt
er
est
,
r
ent
,
et
c
31
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
2.Adj
ust
i
ngDef
er
r
edRev
enue(
Unear
nedRev
enue)
OnDecember31,t
hebal
ancei
nt
heunear
nedr
entaccounti
sBr
720.Thi
sbal
ance
r
epr
esent
st
her
ecei
ptoft
hr
eemont
h’
sr
ent
.Att
heendofDecember
,t
heunear
ned
r
entaccountshoul
dbedebi
t
ed(
decr
eased)byBr240andt
her
enti
ncomeaccount
shoul
dbecr
edi
t
ed(
i
ncr
eased)byBr240.
3.Adj
ust
i
ngAccr
uedExpenses(
Accr
uedLi
abi
l
i
t
i
es)
Someser
v
i
cesar
epai
df
oraf
t
ert
heser
v
i
ceshav
ebeenper
f
or
med.Forexampl
e,
Wagesexpenseaccumul
at
edoraccr
ueshourbyhouranddaybyday
,butpay
ment
maybemadeonl
yweekl
y
,bi
weekl
y
,ormont
hl
y
.Theamountofsuchanaccr
uedbut
unpai
di
t
em att
heendoft
heaccount
i
ngper
i
odi
sbot
hanexpenseandal
i
abi
l
i
t
y
.For
exampl
e,att
heendofDecemberaccr
uedwagesf
orEt
hi
oMobi
l
eMai
nt
enancewas
Br250.Thi
samounti
sanaddi
t
i
onalexpenseofDecemberandi
sdebi
t
edt
ot
he
sal
ar
yexpenseandsal
ar
ypay
abl
e.I
nt
hi
sexampl
e,
December1i
sonSundayandt
he
t
h
t
h
f
i
r
standt
hesecondsal
ar
ypay
menton13 and27 ofDecember
,r
espect
i
v
el
yi
f
sal
ar
yi
spai
donbi
weekl
ybasi
s.I
fpay
mentf
ort
henext10wor
ki
ngday
si
sBr1250
t
heaccr
uedsal
ar
ywi
l
l
beBr250
4.Adj
ust
i
ngPl
antAsset
s
Ast
i
mepasses,t
heequi
pmentl
osesi
t
sabi
l
i
t
yt
opr
ov
i
deusef
ulser
v
i
ces.Thi
s
decr
easei
nusef
ul
nessi
scal
l
eddepr
eci
at
i
on.Al
lpl
ant
,exceptl
and,l
osest
hei
r
usef
ul
ness.I
ti
sdi
f
f
i
cul
tt
oobj
ect
i
v
el
ymeasur
et
hedecr
easei
nusef
ul
nessofapl
ant
asset
.Fort
hi
sr
eason,depr
eci
at
i
oni
naccount
i
ngi
st
hesy
st
emat
i
cal
l
ocat
i
onof
pl
antasset
scostt
ot
heusef
ull
i
f
easanexpense.Thi
sal
l
ocat
i
onoccur
sov
ert
he
asset
’
sest
i
mat
edl
i
f
edur
i
ngwhi
chi
ti
sexpect
edt
ogener
at
er
ev
enue.Theadj
ust
i
ng
ent
r
yi
s made by debi
t
i
ng a depr
eci
at
i
on expense accountand cr
edi
t
i
ng an
accumul
at
eddepr
eci
at
i
onaccountf
ol
l
owedbyt
hespeci
f
i
cnameoft
hatpl
antasset
.
Forexampl
e,
assumi
ngt
hatt
heest
i
mat
edamountofdepr
eci
at
i
onf
ort
hemont
hi
sBr
100,t
headj
ust
i
ngent
r
ydebi
t
s(
i
ncr
eases)Depr
eci
at
i
onExpenseby100andcr
edi
t
s
(
i
ncr
eases)Accumul
at
edDepr
eci
at
i
onEqui
pmentbyt
hesameamount
.
 BookVal
ue(
BV)anAsset=Cost–Accumul
at
edDepr
eci
at
i
on
 BookVal
ueoft
heEqui
pment
=Br7,
000–100=Br6,
900
3.
5) Wor
ksheetf
orFi
nanci
alSt
at
ement
s
A wor
ki
ngpaperof
t
enusedbyaccount
ant
st
osummar
i
zeadj
ust
mentdat
aand
assi
sti
npr
epar
i
ngt
hef
i
nanci
alst
at
ement
si
scal
l
edt
hewor
ksheet
.I
ti
si
dent
i
f
i
edby
t
hr
eeheadi
ngsandhasf
i
v
ecol
umns:Tr
i
alBal
anceCol
umn,Adj
ust
mentCol
umn,
Adj
ust
ed Tr
i
alBal
ance Col
umn,I
ncome St
at
ementCol
umn,and Bal
ance Sheet
Col
umn.
UsesofWor
ksheet
:
1.I
tReducesThePossi
bi
l
i
t
yOfOv
er
l
ooki
ngTheNeedForAnAdj
ust
ment
s
2.I
tpr
ov
i
desAConv
eni
entMeansOfVer
i
f
y
i
ngAr
i
t
hmet
i
cal
Accur
acy
3.I
tPr
ov
i
desForTheAr
r
angementOfDat
aI
sALogi
cal
For
m
4.I
tPr
ov
i
desTheSour
ceDat
aForTheFi
nanci
al
St
at
ement
s
32
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Pr
epar
i
ngwor
ksheetbasedont
heabov
eadj
ust
mentdat
af
ort
heser
v
i
cer
ender
i
ng
busi
ness.
Et
hi
opi
aMobi
l
eMai
nt
enance
Wor
kSheet
ForTheYearEndedDecember31,
2004
Ti
t
l
eofAccount
s
Cash
AccountRecei
v
abl
es
Suppl
i
es
Pr
epai
dI
nsur
ance
Of
f
i
ceEqui
pment
Land
AccountPay
abl
es
Unear
nedRent
Samuel
,
Capi
t
al
Samuel
,
Dr
awi
ng
Ser
v
i
ceRev
enue
Sal
ar
yExpense
RentExpense
Ut
i
l
i
t
i
esExpense
Mi
scel
l
aneousExp.
Suppl
i
esExpense
I
nsur
anceExpense
RentI
ncome
Sal
ar
yPay
abl
e
Depr
eci
at
i
onExpense
Accum.Depr
eci
at
i
onEqui
p.
Tr
i
al
Bal
ance
Debi
t Cr
edi
t
2,
740
1,
800
2,
000
2,
400
7,
000
10,
00
0
3,
500
720
1,
000
16,
050
10,
700
2,
500
800
550
180 _
_
_
_
_
30,
97
0 30,
970
I
ncome
Bal
ance
Adj
ust
edTB
St
at
ement
Sheet
Debi
t Cr
edi
t Debi
t Cr
edi
t Debi
t Cr
edi
t
2,
740
2,
740
1,
800
1,
800
A)
1,
500
500
500
B)100 2,
300
2,
300
7,
000
7,
000
10,
00
10,
000
0
3,
500
3,
500
C)
240
480
480
16,
05
0
16,
050
1,
000
1,
000
10,
70
10,
70
0
0
D)
250
2,
750
2,
750
800
800
550
550
180
180
Adj
ust
ment
Debi
t Cr
edi
t
A)
1,
500
B)
100
E)100
C)
240
D)
250
1,
500
100
100
_
_
_
_
_
_
E)100 _
_
_
_
_
_
2,
190
2,
190 31,
320
NetI
ncome
240
250
100
31,
32
0
1,
500
100
240
250
100
100
10,
94 25,
34
5,
980
0
0
4,
960 _
_
_
_
_
_ _
_
_
_
_
_
10,
94 25,
34
10,
940
0
0
20,
380
4,
960
25,
340
3.
6) Pr
epar
at
i
onofFi
nanci
alSt
at
ement
s
Thewor
ksheeti
sanai
di
npr
epar
i
ngt
hef
i
nanci
alst
at
ementnamel
yt
hei
ncome
St
at
ement
,The Capi
t
alSt
at
ement and t
he Bal
ance Sheet
.For Et
hi
oMobi
l
e
Mai
nt
enance,
t
hef
i
nanci
al
st
at
ement
sar
epr
esent
edasf
ol
l
ows:
33
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
1.TheI
ncomeSt
at
ement
Et
hi
oMobi
l
eMai
nt
enance
I
ncomeSt
at
ement
ForTheYearEndedDecember31,
2004
Rev
enues:
I
nBi
r
r I
nBi
r
r
Ser
v
i
ceRev
enue
10,
70
0
RentI
ncome
240
Tot
al
Rev
enue
10,
940
Expenses:
Sal
ar
yExpense
2,
750
RentExpense
800
Depr
eci
at
i
onExpense
100
Ut
i
l
i
t
i
esExpense
550
Suppl
i
esExpense
1,
500
I
nsur
anceExpense
100
Mi
scel
l
aneousExpense
180
Tot
al
Oper
at
i
ngExpense
5,
980
NetI
ncome
4,
960
2.St
at
ementofOwner
’
sEqui
t
y
Et
hi
oMobi
l
eMai
nt
enance
St
at
ementofOwner
’
sEqui
t
y
Fort
heYearEndedDecember31,
2004
Samuel
,
Capi
t
al
December1,
2004
Br16,
050
Add:
NetI
ncome(
NetLoss)
4,
960
Less:
Wi
t
hdr
awal
(
1,
000)
NetI
ncr
easeI
nCapi
t
al
3,
960
Samuel
,
Capi
t
al
December31,
2004
Br20,
010
3.TheBal
anceSheet
Et
hi
oMobi
l
eMai
nt
enance
Bal
anceSheet
December31,
2004
Asset
s:
I
nBi
r
r Li
abi
l
i
t
i
esandCapi
t
al
:
Cash
2,
740 Li
abi
l
i
t
i
es:
A/
Recei
v
abl
es
1,
800 Account
sPay
abl
e
Suppl
i
es
500 Sal
ar
yPay
abl
e
Pr
epai
dI
nsur
ance
2,
300 Unear
nedRent
Tot
al
Cur
r
entAsset
s
7,
340 Tot
al
Cur
r
entLi
abi
l
i
t
i
es
Of
f
i
ceEqui
pment
:
LongTer
m Li
abi
l
i
t
i
es
7,
000
Less:
Acc.Depr
eci
at
i
on
6,
900
Tot
al
Li
abi
l
i
t
i
es
(
100)
Land
10,
00
Capi
t
al
:
0
Tot
al
Pl
antAsset
s
16,
900 Samuel
,
Capi
t
al
I
nBi
r
r
3,
500
250
480
4,
230
0.
00
4,
230
20,
010
34
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Tot
al
Asset
s
Br
24,
24 Tot
al
Li
ab.andCapi
t
al
0
Br
24,
24
0
Not
e:Fi
nanci
alst
at
ement
smayannualori
nt
er
i
m.St
at
ement
st
hatar
epr
epar
edf
ora
per
i
odofl
esst
hanoney
earar
ecal
l
edi
nt
er
i
m st
at
ement
s.Af
i
nanci
alr
epor
tt
hati
spr
epar
ed
annual
l
yi
ssai
dt
obef
i
scal
y
earst
at
ement
.
3.
7) Jour
nal
i
zi
ngandPost
i
ngAdj
ust
i
ngEnt
r
i
es
Att
heendoft
heaccount
i
ngper
i
od,
t
headj
ust
mentdat
aappear
i
ngi
nt
hewor
ksheet
ar
er
ecor
dedi
nt
hej
our
nalandpost
edt
ot
hel
edger
.Thi
spr
ocedur
ebr
i
ngst
hel
edger
i
nt
oagr
eementwi
t
ht
hedat
ar
epor
t
edont
hef
i
nanci
alst
at
ement
s.Theadj
ust
i
ng
ent
r
i
esar
edar
edasoft
hel
astdayoft
heper
i
od,ev
ent
hought
heyar
eusual
l
y
r
ecor
dedatal
at
erdat
e.Eachent
r
ymaybesuppor
t
edbyanexpl
anat
i
on,buta
sui
t
abl
ecapt
i
onabov
et
hef
i
r
stadj
ust
i
ngent
r
yi
ssuf
f
i
ci
ent
.TheAdj
ust
i
ngEnt
r
i
esf
or
EMM i
spr
esent
edi
naGener
al
Jour
nal
asf
ol
l
ows:
Gener
al
Jour
nal
Page
Dat
e
Descr
i
pt
i
on
P/
R Debi
t
Cr
edi
t
Adj
ust
i
ngEnt
r
i
es
December Suppl
i
esExpense
1,
500.
0
31
0
Suppl
i
es
1,
500.
00
31 I
nsur
anceExpense
Pr
epai
dI
nsur
ance
100.
00
31 Unear
nedRent
RentI
ncome
240.
00
31 Sal
ar
yExpense
Sal
ar
yPay
abl
e
250.
00
31 Depr
eci
at
i
onExpense
Accumul
at
edDepr
eci
at
i
onE
100.
00
100.
00
240.
00
250.
00
100.
00
3.
8) Jour
nal
i
zi
ngandPost
i
ngCl
osi
ngEnt
r
i
es
Rev
enues,expensesanddr
awi
ngordi
v
i
dendaccount
sar
et
empor
ar
yaccount
susedi
n
cl
assi
f
y
i
ngandsummar
i
zi
ngchangesi
nt
heowner
’
sequi
t
ydur
i
ngaccount
i
ngper
i
od.Si
nce
t
heseaccount
sar
er
epor
t
edf
oreachper
i
od,
t
hebal
ancesoft
heseaccount
sshoul
dbezer
o
att
hebegi
nni
ngoft
henextper
i
od.Becauset
hebal
ancesoft
heseaccount
sar
enotcar
r
i
ed
f
or
war
d,t
heyar
esomet
i
mescal
l
edt
empor
ar
yaccount
sornomi
nalaccount
s.Thebal
ances
oft
empor
ar
yaccount
sandpr
epar
i
ngt
heseaccount
sf
orusei
naccumul
at
i
ngdat
af
ort
he
f
ol
l
owi
ngper
i
odi
saccompl
i
shedbyr
emov
i
ngt
hei
rbal
ancest
hr
oughcl
osi
ngent
r
i
es.Cl
osi
ng
ent
r
i
esar
emadewi
t
ht
hehel
pofanot
hert
empor
ar
yaccountcal
l
edI
ncomeSummar
y
.The
f
ourent
r
i
esr
equi
r
edt
ocl
oset
het
empor
ar
yaccount
sofasol
epr
opr
i
et
or
shi
patt
heendof
t
heaccount
i
ngper
i
odar
e:
A.t
ocl
oser
ev
enueaccount
seachr
ev
enueaccounti
sdebi
t
edf
ort
heamountof
35
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
i
t
sbal
anceandt
hei
ncomesummar
yi
scr
edi
t
edf
ort
ot
al
r
ev
enue
B.t
ocl
oseexpenseaccount
seachexpenseaccounti
scr
edi
t
edf
ort
heamount
ofi
t
sbal
anceandi
ncomesummar
yi
sdebi
t
ed
C.I
ncomesummar
ymi
ghthav
edebi
t(
netl
oss)orcr
edi
t(
neti
ncome)bal
ance
af
t
err
ev
enuesandexpensesar
ecl
osed.I
fi
ti
sdebi
tbal
ancei
ncomesummar
y
i
scr
edi
t
edandcapi
t
ali
sdebi
t
edandi
fi
ti
scr
edi
tbal
ancei
ncomesummar
yi
s
debi
t
edandcapi
t
al
i
scr
edi
t
ed.
D.Tocl
osedr
awi
ngaccount
t
hedr
awi
ngaccounti
scr
edi
t
edf
ort
heamountof
i
t
sbal
anceandt
hecapi
t
al
accounti
sdebi
t
edf
ort
hesameamount
.
Gener
al
Jour
nal
Dat
e
Descr
i
pt
i
on
Cl
osi
ngEnt
r
i
es
December Ser
v
i
ceRev
enue
31
RentI
ncome
I
ncomeSummar
y
P/
R
Debi
t
10,
700.
0
0
240.
00
31 I
ncomeSummar
y
Sal
ar
yExpense
RentExpense
I
nsur
anceExpense
Suppl
i
esExpense
Ut
i
l
i
t
i
esExpense
Depr
eci
at
i
onExpense
Mi
scel
l
aneous
Expense
5,
980.
00
31 I
ncomeSummar
y
Samuel
,
Capi
t
al
4,
960.
00
31 Samuel
,
Capi
t
al
Samuel
,
Dr
awi
ng
1,
000.
00
Page
Cr
edi
t
10,
940.
00
2,
750.
00
800.
00
100.
00
1,
500.
00
550.
00
100.
00
180.
00
4,
960.
00
1,
000.
00
3.
9) PostCl
osi
ngTr
i
alBal
ance
Thel
astandopt
i
onalpr
ocedur
eoft
heaccount
i
ngcy
cl
ei
st
hepr
epar
at
i
onofat
r
i
albal
ance
af
t
eral
lt
het
empor
ar
yaccount
shav
ebeencl
osed.Thepur
poseoft
hepostcl
osi
ngt
r
i
al
bal
ancei
st
omakesur
et
hatt
hel
edgeri
si
nbal
anceatt
hebegi
nni
ngoft
henewaccount
i
ng
per
i
od.
Et
hi
oMobi
l
eMai
nt
enance
PostCl
osi
ngTr
i
al
Bal
ance
December31,
2004
AccountTi
t
l
e
Debi
t Cr
edi
t
Cash
AccountRecei
v
abl
es
Suppl
i
es
36
Chapt
erThr
ee:
Account
i
ngf
orSer
v
i
ceRender
i
ngBusi
nesses
Pr
epai
dI
nsur
ance
Of
f
i
ceEqui
pment
Accumul
at
edDepr
eci
at
i
on-Equi
pment
Land
AccountPay
abl
es
Unear
nedRent
Sal
ar
yPay
abl
e
Samuel
,
Capi
t
al
Tot
al
37
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
Chapt
erFour
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
I
nt
hepr
ecedi
ngchapt
er
swehav
ei
l
l
ust
r
at
edt
heaccount
i
ngcy
cl
ef
oror
gani
zat
i
ons
t
hatr
enderser
v
i
cest
ot
hei
rcust
omer
s.Mer
chandi
si
ngcompani
es,i
ncont
r
ast
,ear
n
t
hei
rr
ev
enuebysel
l
i
nggoods.
Abusi
nesst
hatbuy
sandr
esel
l
sgoodsi
scal
l
edMer
chandi
si
ngBusi
ness.Thegoods
t
hata mer
chandi
si
ng companysel
l
st
oi
t
s cust
omer
s ar
e cal
l
ed i
nv
ent
or
y(
or
mer
chandi
se)
.Mer
chandi
si
ng compani
esi
ncl
udebot
hr
et
ai
l
er
sand whol
esal
er
s.
Thesecompani
espur
chaser
eady
madeorr
eadyt
osel
lgoodsandgetal
lear
ni
ngor
r
ev
enuebysel
l
i
ngt
hem.Mer
chandi
semayi
ncl
udeany
t
hi
ng,whi
chamer
chandi
si
ng
busi
nesscanbuyf
orr
esel
lpur
poseandmayv
ar
yf
r
om needl
et
oaut
omobi
l
es.
Mer
chandi
si
ngent
er
pr
i
sescommonl
yuset
hepr
ocedur
esdescr
i
bedbel
ow.Howev
er
,
t
hesepr
ocedur
esmayv
er
yf
r
om busi
nesst
obusi
ness.ForExampl
e:
 Pur
chasesandsel
l
smaybemadef
orcashoroncr
edi
tbasi
s
 Di
f
f
er
entar
r
angementmaybemadef
ormaki
ngpay
mentonaccount
s
 Pol
i
ci
esf
ort
her
et
ur
nofmer
chandi
si
ngmaydi
f
f
erand
 Pol
i
ci
esf
ort
hepay
mentoft
r
anspor
t
at
i
oncost
smayal
sov
ar
y
4.
1) Account
i
ngForPur
chasesandSal
es
Pur
chasesofmer
chandi
sear
eusual
l
yi
dent
i
f
i
ed i
nt
hel
edgeraspur
chases.A
mer
chandi
si
ngbusi
nesscanaccumul
at
ei
nt
hepur
chasesaccountt
hecostofal
l
mer
chandi
se pur
chased f
orr
esal
e dur
i
ng t
he account
i
ng per
i
od.The costof
mer
chandi
sepur
chasedi
sr
ecor
dedbydebi
t
i
nganaccountcal
l
ed“
PURCHASES”
.
Pur
chasescanbemadef
orcashoronaccount
.Thesal
eofmer
chandi
sedur
i
ngan
account
i
ngper
i
odcr
edi
t
edt
oanaccountcal
l
ed“
SALES”
.Mer
chandi
sesmaybesol
d
oncashormayal
sobesol
donaccount
.
I
l
l
ust
r
at
i
on4.
1:Mul
uSuperMar
ketpur
chases2000car
t
onsofCannedFi
shf
r
om
Cent
ur
yTr
adi
ngHouseatacostofBr50percar
t
ononcash.Recor
dt
het
r
ansact
i
on
f
orbot
ht
hebuy
erandt
hesel
l
er
.
TheBuy
er(
Mul
uSuperMar
ket
)
:
Pur
chases
100,
000
Cash
100,
000
Thesel
l
er(
Cent
ur
yTr
adi
ngHouse)
:
Cash
100,
000
Sal
es
100,
000
I
l
l
ust
r
at
i
on4.
2:LucyCosmoTr
adi
ngCompanysol
dmer
chandi
sesofBr5,
700on
cr
edi
tt
oSel
am Cosmet
i
cs.Recor
dt
het
r
ansact
i
onf
orbot
hpar
t
i
es
TheBuy
er
:
Pur
chases
5,
700
Account
sPay
abl
e
5,
700
TheSel
l
er
:
38
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
Account
sRecei
v
abl
e
5,
700
Sal
es
5,
700
I
l
l
ust
r
at
i
on 4.
3:AssumeAmbasselTr
adi
ng Housepur
chases10,
000 car
t
onsof
Exer
ci
sesbookf
r
om GunaTr
adi
ngEnt
er
pr
i
sef
orBr150,
000wi
t
hdawnpay
mentof
60%.Recor
dt
het
r
ansact
i
oni
nt
hebook’
soft
hebuy
erandt
hesel
l
er
.
TheSel
l
er(
GunaTr
adi
ngEnt
er
pr
i
ses)
:
Cash
90,
00
0
Account
sRecei
v
abl
e
60,
00
0
Sal
es
150,
00
0
TheBuy
er(
AmbasselTr
adi
ngHouse)
:
Pur
chases
150,
00
0
Cash
60,
00
0
Account
sPay
abl
e
90,
00
0
Not
e:ThePur
chasesaccounti
susedonl
yf
ormer
chandi
sef
orr
esal
et
ocust
omer
s.
Thati
s,ot
herasset
spur
chasedf
orusei
nt
hebusi
nessar
enotdebi
t
edt
ot
he
pur
chasesaccount
.Theacqui
si
t
i
onoft
heassetr
ecor
dedbydebi
t
i
ngt
heappr
opr
i
at
e
assetaccount
4.
2) Cr
edi
tTer
ms,
CashDi
scount
sandRet
ur
n&Al
l
owances
1.Cr
edi
tTer
ms
Thear
r
angement
sagr
eeduponbyt
hebuy
erandt
hesel
l
erast
owhenpay
ment
sf
or
mer
chandi
sear
et
obemadei
scal
l
edt
hecr
edi
tt
er
ms.I
ft
hepay
menti
sr
equi
r
ed
upondel
i
v
er
y
,
t
het
er
msar
esai
dt
obe“
Casht
er
m”or“
Netcasht
er
m”
.I
ft
hepay
ment
i
snotr
equi
r
edupondel
i
v
er
y
,t
hebuy
eri
sal
l
owedacer
t
ai
nper
i
odoft
i
mef
or
pay
ment
;
t
het
er
mi
sknownast
hecr
edi
tper
i
od.Thecr
edi
tper
i
odusual
l
ybegi
nswi
t
h
t
hedat
eoft
hesal
easshownbyt
hedat
eoft
hei
nv
oi
ceort
hebi
l
l
.Exampl
esofCr
edi
t
Per
i
odt
er
ms:
 n/
30(
i
.
e.net30day
s)–pay
mentwi
l
lbemadeorduewi
t
hi
n30day
saf
t
ert
he
dat
eoft
hei
nv
oi
ce.
 n/
EOM (
i
.
e.netendoft
hemont
h)–t
hepay
mentwi
l
lduebyt
heendoft
he
mont
hi
nwhi
cht
hesal
eswasmade.
 20/
EOM (
i
.
e.20endoft
hemont
h)–Pay
menti
sdue20day
saf
t
ert
heendoft
he
mont
hi
nwhi
cht
hesal
eswasmade
2.CashDi
scount
s
Asameansofencour
agi
ngpay
mentbef
or
et
heendoft
hecr
edi
tper
i
od,t
hesel
l
er
mayof
f
eradi
scountf
ort
heear
l
ypay
mentofcash.Sucht
y
peofdeduct
i
onor
di
scounti
sknown,asacashdi
scount
.I
ti
sadi
scountf
orpr
omptpay
mentmade
f
r
om t
hei
nv
oi
cepr
i
ce.
I
l
l
ust
r
at
i
on4.
4:A s
el
l
ermayof
f
erabuy
era2% di
scounti
fpay
menti
s
39
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
r
ecei
v
edwi
t
hi
n10day
soft
hei
nv
oi
cedat
e.Fort
hi
s,
t
het
er
m“
2/
10,
n/
30”
canbeusedandi
tmeanst
hat
:
 Thecr
edi
tper
i
odi
snet30day
s
 Theper
i
oddur
i
ngwhi
chadi
scounti
sav
ai
l
abl
ei
scal
l
edt
heDi
scountPer
i
odi
.
e.
i
st
hef
i
r
st10day
s
 Thebuy
erwi
l
lgetadeduct
i
onof2% oft
heamountoft
hei
nv
oi
cei
fi
ti
spai
d
wi
t
hi
nt
he10day
soft
hecr
edi
tper
i
od.
Cashdi
scount
scanbePur
chasedi
scountandSal
esdi
scount
.
Pur
chase di
scount
:t
he cash di
scountt
aken byt
he buy
erf
orear
l
yorpr
ompt
pay
mentofani
nv
oi
cei
scal
l
edpur
chasedi
scount
s.Thebuy
err
ecor
dspur
chase
di
scountbycr
edi
t
i
ngt
he“
PURCHASESDI
SCOUNTS”accountandt
heyar
eusual
l
y
v
i
ewedasadeduct
i
onf
r
om t
heamounti
ni
t
i
al
l
yr
ecor
dedasi
npur
chases.Pur
chase
di
scountaccounti
sacont
r
a(
of
f
set
t
i
ng)accountt
oPur
chasesaccount
.
Sal
esdi
scount
s:t
hesel
l
err
ef
er
st
ot
hesamecashdi
scount
st
akenbyt
hebuy
eras
“
SALES DI
SCOUNT”
.I
ti
sr
ecor
ded by debi
t
i
ng sal
es di
scountaccountand
consi
der
edast
heamountt
obededuct
edf
r
om t
heamountsal
es.Sal
esdi
scounti
sa
cont
r
asal
esaccount
.
I
l
l
ust
r
at
i
on4.
5:OnMar
ch1,
2005assumeHebeshaTr
adi
ngHousepur
chasedr
eady
madecl
ot
hesf
r
om Kombol
chaText
i
l
eFact
or
yonaccountf
orBr600,
000;t
er
ms
2/
10,
n/
30.I
nst
r
uct
i
ons:r
ecor
dt
het
r
ansact
i
oni
nt
hebooksofbot
ht
hebuy
erandt
he
sel
l
erassumi
ngt
hat(
A)t
heBuy
erset
t
l
edt
hepay
mentwi
t
hi
nt
hedi
scountper
i
od,
and(
B)t
heBuy
erdi
dnotset
t
l
et
hepay
mentwi
t
hi
nt
hedi
scountper
i
od
A)Wi
t
hi
nt
heDi
scountPer
i
od
TheBuy
er
:
Mar
ch1,
2005: Pur
chases
600,
00
0
Account
sPay
abl
e
600,
00
0
Mar
ch10,
2005: Pur
chaseDi
scount=600,
000*2%=12,
000
Account
sPay
abl
e
600,
00
0
Cash
588,
00
0
Pur
chaseDi
scount
120,
00
0
TheSel
l
er
:
Mar
ch1,
2005: Account
sRecei
v
abl
e
600,
00
0
Sal
es
600,
00
0
Mar
ch10,
2005: Sal
esDi
scount=600,
000*2%=12,
000
40
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
Cash
Sal
esDi
scount
Account
sRecei
v
abl
e
B)Af
t
ert
heDi
scountPer
i
od
TheBuy
er
:
Mar
ch1,
2005: Pur
chases
Account
sPay
abl
e
Mar
ch10,
2005: Account
sPay
abl
e
Cash
TheSel
l
er
:
Mar
ch1,
2005: Account
sRecei
v
abl
e
Sal
es
Mar
ch10,
2005: Cash
Account
sRecei
v
abl
e
588,
00
0
120,
00
0
600,
00
0
600,
00
0
600,
00
0
600,
00
0
600,
00
0
600,
00
0
600,
00
0
600,
00
0
600,
00
0
Not
e:Fr
om t
hebuy
er
’
sst
andpoi
nt
,
i
ti
si
mpor
t
antt
ot
akeadv
ant
ageofal
lav
ai
l
abl
e
di
scount
sev
ent
houghi
tmaybenecessar
yt
obor
r
owmoneyt
omaket
hepay
ment
.
Exampl
e 4.
6:on Januar
y 1,2005 Et
hi
opi
an El
ect
r
i
c Company pur
chased 20
t
r
ansf
or
mer
sf
r
om Wal
l
aceEl
ect
r
oni
cSuppl
i
esatBr200peruni
t
;t
er
ms2/
10,
n/
30.
Thei
nv
oi
cei
st
obepai
dwi
t
hi
nt
hedi
scountper
i
odf
r
om t
hebankat10% f
or
r
emai
ni
ng 20 day
s.Det
er
mi
net
heamountofnetsav
i
ng f
orEt
hi
opi
an El
ect
r
i
c
Company
 Tot
al
i
nv
oi
cepr
i
ce
Br4,
000
 Cashdi
scount(
Br4000*2%=80)
(
80)
 Theamountt
obebor
r
owed
Br3,
920
 I
nt
er
estonmoneybor
r
owed(
3920*
10%*
20/
360) 21.
80
 Netsav
i
ng(
Br80-21.
80=)
Br58.
20
Netsav
i
ngi
st
hedi
f
f
er
encebet
weent
hedi
scountr
ecei
v
edandt
hei
nt
er
estt
obepai
d
f
ort
he20day
si
.
e.i
ft
hebusi
nessbor
r
owedmoneyandset
t
l
edt
hel
i
abi
l
i
t
ywi
t
hi
nt
he
di
scountper
i
od,
t
hebusi
nesscansav
eanamountofBr58.
20
Exer
ci
se4.
1:OnNov
ember1,2004ABC Companypur
chasedmer
chandi
seona
41
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
cr
edi
tt
er
ms3/
10,n/
30andonNov
ember10,2004t
hecompanypai
dBr9700.
I
nst
r
uct
i
on:r
ecor
dt
het
r
ansact
i
oni
naj
our
nalatt
hedat
eofpur
chasesandont
he
dat
eofpay
ment
3.Ret
ur
nandAl
l
owances
Mer
chandi
sepur
chasedf
r
om t
hesuppl
i
ermaybeunsat
i
sf
act
or
y
,
def
ect
i
v
eorwr
ong
speci
f
i
cat
i
on.I
nt
hi
scaset
hegoodsmayber
et
ur
nedt
ot
hesuppl
i
er(
t
hi
si
scal
l
ed
Ret
ur
ns)ort
hebuy
ermayr
equest
sf
orapr
i
cer
educt
i
onoradj
ust
ment(
t
hi
si
scal
l
ed
Al
l
owances)
.Thesamer
et
ur
nandal
l
owancei
sr
ef
er
r
edbyt
hebuy
eraspur
chases
r
et
ur
nsandal
l
owancesandbyt
hesel
l
erassal
esr
et
ur
nsandal
l
owances.
Pur
chasesRet
ur
nsandAl
l
owances(
PRA)
:Thebuy
ersendsadebi
tmemot
ot
he
suppl
i
ert
onot
i
f
yt
hati
ti
sdebi
t
i
ngt
hesel
l
er
’
saccount
.I
ti
sr
ecor
dedbycr
edi
t
i
ng
“
Pur
chasesRet
ur
nandAl
l
owances”or“
Pur
chases”account
.Butmanagementneeds
speci
f
i
ci
nf
or
mat
i
onast
ot
heper
cent
ageofpur
chasesr
et
ur
nandal
l
owancessot
hat
t
heypr
ef
ert
hecr
edi
tgoest
o“
Pur
chasesRet
ur
nsandAl
l
owances”
.
Sal
esRet
ur
nsandAl
l
owances(
SRA)
:Theef
f
ectofsal
esr
et
ur
nandal
l
owancesi
sa
deduct
i
oni
nsal
esr
ev
enueandar
educt
i
oni
noraccountr
ecei
v
abl
e.Ther
ef
or
e,
excessi
v
esal
esr
et
ur
nandal
l
owancesshow t
her
ei
sl
ossi
nr
ev
enue,anaddi
t
i
onal
expenseandcust
omerdi
ssat
i
sf
act
i
on.I
ti
spossi
bl
et
odebi
tt
hesal
esaccount
i
nst
eadofdebi
t
i
ngt
hesal
esr
et
ur
nsandal
l
owancesaccount
.How ev
er
,debi
t
i
ng
sal
esaccountwi
l
l
notdi
scl
oset
heamountofsal
esr
et
ur
nsandal
l
owances.
I
l
l
ust
r
at
i
on4.
7:OnJul
y8,2005Gl
obalTr
adi
ngEnt
er
pr
i
sesol
dmer
chandi
seson
accountt
oGYBCompanyBr40,
000t
er
ms3/
10,n/
eom.OnJul
y11,GYBRet
ur
ned
Br
4000def
ect
i
v
emer
chandi
sest
oGl
obalwhi
chi
spar
toft
hesal
eofJul
y8.OnJul
y
17,Gl
obalr
ecei
v
edcashf
r
om GYB.I
nst
r
uct
i
on:r
ecor
dt
het
r
ansact
i
onsi
nt
hebooks
oft
hebuy
erandt
hesel
l
er
.
TheBuy
er
:
Jul
y8: Pur
chases
40,
00
0
Account
sPay
abl
e
40,
00
0
Jul
y11: Ac
count
sPay
abl
e
4,
000
Pur
chase
Ret
ur
n
and
4,
000
Al
l
owance
Jul
y17: Ac
count
sPay
abl
e
Cash
36,
00
0
Pur
chasesDi
scount
TheSel
l
er
:
Jul
y8:
Account
sRecei
v
abl
e
34,
92
0
1,
080
40,
00
0
42
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
Sal
es
Jul
y11: Sa
l
es
Ret
ur
n
Al
l
owances
and 4,
000
Account
sRecei
v
abl
e
Jul
y17: Ca
sh
Sal
esdi
scount
s
Account
sRecei
v
abl
es
34,
92
0
1,
080
40,
00
0
4,
000
36,
00
0
Exer
ci
se4.
2:AssumeGunaTr
adi
ngEnt
er
pr
i
sessol
dmer
chandi
sef
orcashf
orBr
80,
000t
oGungoTr
adi
ngCompanyonAugust10,2004.GunaTr
adi
ngEnt
er
pr
i
ses
r
ecei
v
edsomeoft
hemer
chandi
sessol
dt
oGungobecauset
heyar
ef
oundt
obe
def
ect
i
v
e.Thecompanyhasgi
v
ent
hecashr
ef
undofBr2500f
orgoodsr
et
ur
nedby
t
hebuy
eronAugust12.I
nst
r
uct
i
on:Recor
dt
het
r
ansact
i
oni
nt
hebook’
soft
hebuy
er
andt
hesel
l
er
4.
3) Tr
adeDi
scount
s,
Sal
esTaxes,
andTr
anspor
t
at
i
onCost
s
1.Tr
adeDi
scount
s
Manywhol
esal
er
sofmer
chandi
sepubl
i
shper
i
odi
ccat
al
ogst
hatar
eusedbybuy
er
s
i
nor
der
i
ngmer
chandi
se.Rat
hert
hanupdat
i
ngt
hei
rcat
al
ogsf
r
equent
l
y
,whol
esal
er
s
publ
i
shpr
i
ceupdat
eswhi
chmayi
nv
ol
v
el
ar
gedi
scount
sf
r
om t
hel
i
stpr
i
cesor
suggest
edpr
i
ceorgr
osspr
i
cei
nt
hei
rcat
al
ogs.I
naddi
t
i
on,t
hesel
l
er
sof
f
ercer
t
ai
n
cl
assesofbuy
er
ssuchasgov
er
nmentagenci
esorbuy
er
swhoor
derl
ar
gequant
i
t
i
es,
speci
aldi
scount
s.Thespeci
aldi
scount
sordi
scount
sf
orl
ar
gequant
i
t
i
espur
chased
ar
ecal
l
edTr
adedi
scount
s.Sel
l
er
sandbuy
er
susual
l
ydon’
tr
ecor
dt
hel
i
stpr
i
cesand
t
her
el
at
edt
r
adedi
scount
si
nt
hei
raccount
i
ngr
ecor
ds.Foraccount
i
ngpur
poseonl
y
t
hef
i
nal
pr
i
ceoragr
eedpr
i
cei
si
mpor
t
ant
.
I
l
l
ust
r
at
i
on4.
8:KOKETCompanypur
chased600uni
t
sofmer
chandi
sesf
r
om BB
Companyt
er
ms3/
10,n/
30.Themer
chandi
sehasal
i
stpr
i
ceofBr50peruni
twi
t
h
t
het
r
adedi
scountof20%,10%and5%.Assumi
ngt
hatKOKETCompanyi
sal
l
owed
al
lt
hesedi
scount
scomput
et
hei
nv
oi
cepr
i
cef
ort
he600 uni
t
sand maket
he
necessar
yj
our
nalEnt
r
i
esi
nt
her
ecor
dofbot
hCompani
esassumi
ngt
hatt
hebuy
er
pai
dwi
t
hi
nt
hedi
scountper
i
od.
 Li
stpr
i
ce(
600uni
t
s*Br50)
Br30,
000.
00
 Tr
adedi
scount(
20%*
30,
000)
(
6000.
00)
 Bal
anceaf
t
ert
he20%TD
Br24,
000.
00
 Less:
TD(
10%*
24,
000)
(
2,
400.
00)
 Bal
anceaf
t
ert
he10%TD
Br21,
600.
00
 Less:
TD(
5%*
21,
600)
(
1,
080.
00)
 Agr
eedPr
i
ceorI
nv
oi
cepr
i
ce
Br20,
520.
00
TheBuy
er
:
Dat
eof
Pur
chases
20,
520
Pur
chases:
Account
sPay
abl
e
20,
52
43
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
0
Dat
e
Pay
ment
:
of Pur
chaseDi
scount=20,
520*3%=616
Account
sPay
abl
e
Cash
TheSel
l
er
:
Dat
eofSal
es:
Dat
e
Recei
pt
s:
20,
520
Pur
chaseDi
scount
Account
sRecei
v
abl
e
Sal
es
20,
520
19,
90
4
616
20,
520
of Sal
esDi
scount=20,
520*3%=616
Cash
Sal
esDi
scount
Account
sRecei
v
abl
e
19,
904
616
20,
520
2.Sal
esTaxes
Gov
er
nmentusual
l
yl
ev
i
esori
mposest
axonr
et
ai
lsal
esofmer
chandi
ses.Sal
esof
mer
chandi
set
hatwi
l
lber
esol
dar
eusual
l
ynott
axed.Asal
est
axi
si
mposedont
he
f
i
nalconsumerbutt
hesel
l
ermustcol
l
ectt
het
ax
,f
i
l
et
axr
et
ur
nsatat
i
mespeci
f
i
ed
byl
awandr
emi
tt
hecol
l
ect
edt
axont
her
epor
t
edsal
est
ot
hegov
er
nment
.
Val
ueAddedTax(
VAT)oneoft
hesal
est
axwhi
chchar
gedont
hesuppl
yofmost
goodsandser
v
i
cesf
ort
hev
al
ueaddedoni
t
. Somegoodsar
enott
axabl
e.For
exampl
e,post
alser
v
i
cesar
enott
axabl
e.I
naddi
t
i
on,someper
sonsandf
i
r
msar
e
exempt
ed f
r
om sal
es t
ax-Ambassadorand Embassy r
esi
dent
s and Char
i
t
i
es
or
gani
zat
i
ons(
Zer
oRat
edFi
r
ms)
.Nat
ur
eoft
hebusi
nessal
soaf
f
ect
st
hesal
est
ax.A
bankf
ori
nst
ancedoesnothav
et
oaddVAToni
t
sbankchar
gesandsmal
lf
i
r
ms,
t
oo.
I
fsmal
lf
i
r
msdor
egi
st
erf
orVATt
hent
heywi
l
lhav
et
okeepf
ul
lVATr
ecor
dsi
n
addi
t
i
ont
ochar
gi
ngoutVAT.
Account
i
ngForSal
esTaxbyt
heSel
l
er
Thesel
l
err
ecor
dssal
est
axcol
l
ect
edbycr
edi
t
i
ngsal
est
axpay
abl
eaccountatt
he
t
i
meofsal
eswhet
heri
ti
scashsal
esorcr
edi
tsal
es.
I
l
l
ust
r
at
i
on4.
9:assumeBui
l
di
ngMat
er
i
al
sSuppl
yEnt
er
pr
i
sesol
d200KGsofnai
l
sat
Br10perki
l
o;600i
r
onsheet
satBr40persheetand700cansofTsedeyPai
ntat
Br
60percanonJanuar
y5,2004.Thegoodsar
esubj
ectt
osal
est
axatt
her
at
eof
15%.Recor
dt
het
r
ansact
i
on.
Quant
i
t
y Uni
tpr
i
ce
Tot
alpr
i
ce Sal
esTax Sal
es
Tax
Amount
200
Br
10
Br2,
000.
00
15%
Br300.
00
600
40
24,
000.
00
15%
3,
600.
00
700
60
42,
000.
00
15%
6,
300.
00
Tot
al
I
nv
oi
cePr
i
ce
Br68,
000.
00 Tot
al
Sal
esTax Br
44
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
Thej
our
nal
ent
r
i
esar
easf
ol
l
ows:
Cash
Sal
es
Sal
esTaxPay
abl
e
10,
200.
00
78,
200
68,
000
10,
200
I
l
l
ust
r
at
i
on4.
10:AssumeBui
l
di
ngMat
er
i
al
sSuppl
yEnt
er
pr
i
sesol
d500cansofpai
nt
atBi
r
r60percant
oLal
i
bel
aEngi
neer
i
ngonaccount
,onJanuar
y10,2004.Thesal
e
wassubj
ectt
oasal
est
axof15%.Jour
nal
i
zet
het
r
ansact
i
onandt
her
emi
t
t
anceof
t
axpay
abl
eamountonJanuar
y5and10,
r
espect
i
v
el
y
.
 Tot
al
Pr
i
ce(
Br60*500cans)
 Sal
esTax(
Br30000*15%)
 Tot
al
Amount
Januar
y5: Account
sRecei
v
abl
e
Sal
es
Sal
esTaxPay
abl
e
Januar
y10:Sal
esTaxPay
abl
e
Cash
34,
500
14,
700
Br30,
000.
00
4,
500.
00
Br3,
4500.
00
30,
000
4,
500
14,
700
AnAl
t
er
nat
i
v
eAppr
oacht
oSal
esTax:
I
nst
eadofr
ecor
di
ngt
hesal
est
axl
i
abi
l
i
t
yatt
het
i
meofsal
e,
somebusi
nessespr
ef
er
t
ocr
edi
tt
hesal
eswi
t
ht
heent
i
r
eamountcol
l
ect
edi
ncl
udi
ngt
hesal
est
axandt
o
makeanadj
ust
mentatt
heendofeachper
i
odt
or
ef
l
ectsal
est
axpay
abl
e.
I
l
l
ust
r
at
i
on 4.
11:supposet
hatt
het
ot
alamountr
ecor
ded t
ot
hesal
esaccount
i
ncl
udi
ngt
hesal
est
axf
ort
heper
i
odwasBr345000.I
ft
hesal
est
axr
at
ei
s15%
maket
henecessar
yadj
ust
mentt
or
ecor
dt
hesal
est
axl
i
abi
l
i
t
yatt
heendoft
he
per
i
od.












Tot
al
Amount
Br345,
000.
00
Sal
esTax-15%
Sal
es+Sal
esTax=345,
000.
00
Sal
es+(
Sal
es*Sal
esTaxRat
e)=345,
000.
00
Sal
es+15%Sal
es= 345,
000.
00
Sal
es+0.
15Sal
es=345,
000.
00
1.
15Sal
es=345,
000.
00
Sal
es=345,
000.
00/1.
15
Sal
es=300,
000.
00
Sal
es+Sal
esTax=345,
000.
00
300000+Sal
esTax=345,
000.
00
Sal
esTax=345000-300000
 Sal
esTax
=45,
000.
00
 Sal
es:
Cash
Sal
es
345,
00
0
345,
00
0
45
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
 Adj
ust
i
ngEnt
r
i
es:
Sal
es
Sal
esTaxPay
abl
e
 Pay
ment
:
Sal
esTaxPay
abl
e
Cash
 TheBuy
er
:
Pur
chases
Cash
45,
000
45,
00
0
45,
00
0
45,
00
0
345,
00
0
345,
00
0
3.Tr
anspor
t
at
i
onCost
s
Thet
er
msofagr
eementbet
weenabuy
erandsel
l
eri
ncl
udewhent
heowner
shi
pof
t
hemer
chandi
sepassest
ot
hebuy
erandwhi
chpar
t
yi
st
oabsor
bt
hecostof
del
i
v
er
i
ngt
hemer
chandi
set
ot
hebuy
er
.Ther
ear
et
womostcommont
er
mswi
t
h
r
espectt
ot
hi
s:
FOB(
Fr
eeonBoar
d)Shi
ppi
ngPoi
ntandDest
i
nat
i
on.
FOBShi
ppi
ngPoi
nt
:undert
hi
st
er
mt
hesel
l
erpl
acesmer
chandi
se“
Fr
eeOnBoar
d”
att
heshi
ppi
ngpoi
nt
.Thus,
 Thebuy
erpay
st
r
anspor
t
at
i
oncost
s
 Owner
shi
pi
st
r
ansf
er
r
edatpoi
ntofshi
pment
 Thegoodsar
et
hepr
oper
t
yoft
hebuy
eraf
t
ert
hepoi
ntofshi
pment
 Anyr
i
ski
sabsor
bedbyt
hebuy
erwhi
l
et
hegoodsi
si
nt
r
ansi
t
FOBDest
i
nat
i
on:undert
hi
st
er
mt
hesel
l
erpl
acesmer
chandi
se“
Fr
eeOnBoar
d”at
t
hebuy
er
’
sf
i
nal
dest
i
nat
i
onbypay
i
ngt
hedel
i
v
er
ycost
s.Thus,
 Thesel
l
erpay
st
het
r
anspor
t
at
i
oncost
s
 Ti
t
l
eorowner
shi
pt
ot
hegoodsi
st
r
ansf
er
r
edatt
hebuy
er
’
sl
ocat
i
on
 Thegoodsar
et
hepr
oper
t
yoft
hesel
l
erwhi
l
ei
nt
r
ansi
t
 Anyr
i
skwhi
l
et
hegoodsi
nt
r
ansi
ti
sabsor
bedbyt
hesel
l
er
Whenmer
chandi
sei
spur
chasedont
er
msofFOBshi
ppi
ngpoi
nt
,t
het
r
anspor
t
at
i
on
cost
spai
dbyt
hebuy
eri
sdebi
t
edt
oTr
anspor
t
at
i
onI
norFr
ei
ghtI
norPur
chases
account
.I
nsomecases,
t
hesel
l
ermaypr
epayt
het
r
anspor
t
at
i
oncost
sandaddt
hem
t
ot
hebuy
er
,
ev
ent
hought
heagr
eementi
sst
at
est
hatt
hebuy
erbearsuchcost
s(
i
.
e.
t
er
msFOBshi
ppi
ngpoi
nt
)
.Thi
si
sal
sodebi
t
edt
ot
hesameaccount
sasabov
e.
When t
he agr
eementst
at
es t
hatt
he sel
l
eri
st
o beart
he del
i
v
er
ycost
s(
FOB
Dest
i
nat
i
on)
,t
heamountpai
dbyt
hesel
l
erf
ordel
i
v
er
yofmer
chandi
sei
sdebi
t
edt
o
Tr
anspor
t
at
i
onOutorFr
ei
ghtOutordel
i
v
er
yExpenseorasi
mi
l
ar
l
yt
i
t
l
edaccount
.
Thet
ot
alofsuchcost
si
ncur
r
eddur
i
ngaper
i
odi
sr
epor
t
edont
hesel
l
er
’
si
ncome
st
at
ementasasel
l
i
ngexpenseandwi
l
l
notbei
ncl
udedi
nt
hecostofgoodssol
d.
I
l
l
ust
r
at
i
on4.
12:
onFebr
uar
y1,2004RRTr
adi
ngCompanypur
chasedmer
chandi
se
46
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
onaccountf
r
om KKCompanyf
orBr12,
000,t
er
msFOBshi
ppi
ngpoi
nt2/
10,n/
30
andt
hebuy
erpai
dat
r
anspor
t
at
i
oncostofBr100t
oXXTr
anspor
t
at
i
onCompany
.On
Febr
uar
y12,
RRCompanypai
dcasht
oKKCo.
Febr
uar
y1: Pur
chases
12,
000
Tr
anspor
t
at
i
oni
n
1,
000
Account
sPay
abl
e
12,
000
Cash
1,
000
OR: Pur
chases
13,
000
Account
sPay
abl
e
12,
000
Cash
1,
000
Febr
uar
y12: Account
sPay
abl
e
12,
000
Cash
12,
000
I
l
l
ust
r
at
i
on 4.
13:On Mar
ch 5,MM CompanyPur
chased mer
chandi
se f
r
om JJ
CompanyonaccountBr8500t
er
ms1/
10,n/
30FOBshi
ppi
ngpoi
nt
.JJCompany
pay
st
het
r
anspor
t
at
i
onchar
gesofBr5000.I
nst
r
uct
i
ons:
 Att
hedat
eofpur
chase
 I
fMM Co.r
et
ur
nedsomemer
chandi
sewhi
chhav
eacostBr500onMar
ch9
 I
fMM Co.pai
dcasht
oJJCompanyonMar
ch14
Mar
ch5: Pur
chases
8,
500
Tr
anspor
t
at
i
oni
n
500
Account
sPay
abl
e
9,
000
Mar
ch9: Account
sPay
abl
e
500
Pur
chaseRet
ur
n&Al
l
ow
500
Mar
ch14: Account
sPay
abl
e
8,
500
Cash
8,
420
Pur
chaseDi
scount
80
I
l
l
ust
r
at
i
on4.
13:onMay1,2004Mel
atPr
i
v
at
eLi
mi
t
edCompanysol
dmer
chandi
se
t
oBel
ul
ePr
i
v
at
eLi
mi
t
edCompanyonaccountf
orBr90,
000t
er
msFOBdest
i
nat
i
on
2/
10,n/
30.Thesel
l
erpai
dBr4,
000t
oTTTr
anspor
tShar
eCo.andr
ecei
v
edt
he
amountonMay10.I
nst
r
uct
i
ons:j
our
nal
i
zet
heabov
et
r
ansact
i
ons:
May1: Account
sRecei
v
abl
e
90,
000
Del
i
v
er
yExpense
4,
000
Sal
es
90,
000
Cash
4,
000
May
Cash
88,
200
10:
Sal
esDi
scount
1,
800
Account
sRecei
v
abl
e
90,
000
Exer
ci
se4.
3:MEWI
T(
Mer
chandi
seWhol
eSal
eandI
mpor
tTr
adeEnt
er
pr
i
se)sol
dt
o
BMSEonaccount
,l
i
stpr
i
ceBr
40000,t
r
adedi
scount20%,sal
est
ax5%,t
er
m 3/
10,
n/
30,FOBShi
ppi
ngPoi
nt
.Thesel
l
erpay
st
r
anspor
t
at
i
oncostofBr1000andaddsi
t
t
ot
hei
nv
oi
ceandt
hesel
l
eri
ssuest
hecr
edi
tmemor
andum f
orBr5000mer
chandi
se
r
et
ur
nedandsubsequent
l
yr
ecei
v
est
heamountwi
t
hi
nt
hedi
scountper
i
od.Recor
d
47
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
t
het
r
ansact
i
onsf
orbot
hpar
t
i
es
4.
4) Per
i
odi
cRepor
t
i
ngandMer
chandi
seI
nv
ent
or
ySy
st
em
1.Per
i
odi
cRepor
t
i
ng
Thesequenceofy
earendpr
ocedur
esmaybechangedsl
i
ght
l
y
,buti
ngener
alt
he
f
ol
l
owi
ngout
l
i
nei
st
y
pi
cal
:
1.Pr
epar
eat
r
i
al
bal
anceoft
hel
edgeronawor
ksheetf
or
m
2.Rev
i
ewt
heaccount
sandgat
hert
hedat
ar
equi
r
edf
ort
headj
ust
ment
3.I
nser
tt
headj
ust
ment
sandcompl
et
et
hewor
ksheet
4.Pr
epar
ef
i
nanci
al
st
at
ement
sf
r
om t
hedat
ai
nt
hewor
ksheet
5.Jour
nal
i
zet
headj
ust
i
ngent
r
i
esandpostt
ot
hel
edger
6.Jour
nal
i
zet
hecl
osi
ngent
r
i
esandpostt
ot
hel
edger
7.Pr
epar
eapostcl
osi
ngt
r
i
al
bal
anceoft
hel
edger
2.Mer
chandi
seI
nv
ent
or
ySy
st
ems
Thesy
st
em t
hr
oughwhi
chy
oucandet
er
mi
neCGSandCostofEndi
ngI
nv
ent
or
yi
s
cal
l
edi
nv
ent
or
ysy
st
em.Thet
womai
nsy
st
emsf
oraccount
i
ngf
ormer
chandi
sehel
d
f
orsal
ear
et
heper
i
odi
ci
nv
ent
or
ysy
st
em andt
heper
pet
ual
i
nv
ent
or
ysy
st
em.
 ThePer
i
odi
cI
nv
ent
or
ySy
st
em andDet
er
mi
nat
i
onofCostofMer
chandi
seSol
d
I
nt
hi
ssy
st
em:
 Thepur
chaseofmer
chandi
sei
sdebi
t
edt
opur
chasesaccount
 Ther
ev
enuef
r
om sal
esi
sr
ecor
dedwhenatsal
ewasmadebutnoat
t
empti
s
madet
or
ecor
dt
hecostofmer
chandi
sesol
d
 ThecostofEndi
ng I
nv
ent
or
yi
sdet
er
mi
ned byt
aki
ng aphy
si
cali
nv
ent
or
y
(
count
i
ngt
hemer
chandi
seathandorunsol
dandmul
t
i
pl
y
i
ngbyi
t
suni
tpr
i
ce)
.
 Thecostofmer
chandi
sesol
d(
CMS)i
sdet
er
mi
nedasf
ol
l
ows:
Mer
chandi
seI
nv
ent
or
y(
Begi
nni
ng)
xxxxx
Add:
Pur
chases
xxxxx
Less:
Pur
chaseRet
ur
n&Al
l
ow
(
xxxxx)
Less:
PD
(
xxxxx)
NetPur
chases
xxxxx
Add:
Fr
ei
ghti
n
xxxxx
Costofmer
chandi
sepur
chased
xxxxx
CostofMer
chandi
seAv
ai
l
abl
ef
orsal
es(
CMAS)xxxxx
Less:
Endi
ngI
nv
ent
or
y
(
xxxxx)
CostofMer
chandi
seSol
d
xxxxx
Adj
ust
ment
si
nMer
chandi
si
ngBusi
ness
1.Adj
ust
i
ngMer
chandi
seI
nv
ent
or
y
Mer
chandi
sei
nv
ent
or
yaccountshowedt
hei
nv
ent
or
ybal
anceatt
hebegi
nni
ngoft
he
per
i
odt
hr
oughoutanaccount
i
ngper
i
odi
ft
hebusi
nessi
susi
ngPer
i
odi
cI
nvent
or
y
Syst
em.Pur
chasesandpur
chasesr
el
at
edaccountar
er
ecor
dedsepar
at
el
ydur
i
ng
t
hey
earandt
husatt
heendoft
heper
i
odt
woadj
ust
i
ngent
r
i
esar
er
equi
r
edt
oupdat
e
mer
chandi
sei
nv
ent
or
yaccount
.
48
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
A)Toadj
ustbegi
nni
ngi
nv
ent
or
y
:
I
ncomeSummar
y
xxxxx
Mer
chandi
seI
nv
ent
or
y
xxxxx
B)Toadj
ustendi
ngi
nv
ent
or
y
:
Mer
chandi
seI
nv
ent
or
y
xxxxx
I
ncomeSummar
y
xxxxx
I
l
l
ust
r
at
i
on4.
14:Assumef
r
om Januar
y1,2004,t
hemer
chandi
sei
nv
ent
or
yhasa
bal
anceofBr180,
000andt
heendi
ngi
nv
ent
or
yonDecember31oft
hesamey
eari
s
Br220,
000.I
nst
r
uct
i
on:j
our
nal
i
zet
headj
ust
i
ngent
r
y
Adj
ust
i
ngBegi
nni
ngI
nv
ent
or
y
I
ncomeSummar
y
180,
00
0
Mer
chandi
seI
nv
ent
or
y
180,
00
0
Adj
ust
i
ngEndi
ngI
nv
ent
or
y
Mer
chandi
seI
nv
ent
or
y
220,
00
0
I
ncomeSummar
y
220,
00
0
2.Adj
ust
i
ngDef
er
r
al
sandAccr
ual
s
I
n mer
chandi
si
ng busi
ness i
n addi
t
i
on t
o mer
chandi
se i
nv
ent
or
y
,def
er
r
al
s and
accr
ual
sar
eadj
ust
ed.Thi
swi
l
l
bedi
scussedi
nnextchapt
er
.
4.
5) Wor
ksheet
sForMer
chandi
si
ngBusi
nesses
Af
t
eral
l
t
r
ansact
i
onsf
ort
hey
ear2004wer
er
ecor
dedandpost
ed,
t
heaccount
si
nt
he
l
edgerofFarEastTr
adi
ng Cor
por
at
i
on appear
ed wi
t
ht
hef
ol
l
owi
ng unadj
ust
ed
bal
ances.Seet
heTr
i
alBal
anceont
henextPage.Thedat
aneeded f
ory
earend
adj
ust
ment
sonDecember31ar
easf
ol
l
ows:
 Mer
chandi
seI
nv
ent
or
yonDecember31,
2004
Br150,
500.
00
 I
nsur
anceexpi
r
eddur
i
ngt
hey
ear
6,
400.
00
 St
or
esuppl
i
esi
nv
ent
or
yonDecember31,
2004
2,
150.
00
 Depr
eci
at
i
onf
ort
hecur
r
enty
ear
19,
200.
00
 Accr
uedSal
esSal
ar
i
esonDecember31,
2004
2,
800.
00
 Accr
uedOf
f
i
ceSal
ar
i
esonDecember31,
2004
1,
300.
00
Requi
r
ed:
1.Compl
et
et
hewor
ksheet
2.Pr
epar
eI
ncomest
at
ementi
nSi
ngl
e-st
epandMul
t
i
pl
e-st
epf
or
ms
3.Pr
epar
eaRet
ai
nedear
ni
ngsSt
at
ement
4.Pr
epar
eacl
assi
f
i
edBal
ancesheet
,
i
naRepor
tf
or
m
5.Recor
dt
henecessar
yy
earendadj
ust
i
ngandcl
osi
ngent
r
i
esongener
al
j
our
nal
Page1
6.Pr
epar
eaPost
-cl
osi
ngt
r
i
al
bal
ance
49
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
FarEastTr
adi
ngCor
por
at
i
on
Tr
i
al
Bal
ance
December31,
2004
AccountTi
t
l
e
Dr
.
Cr
.
Cash
43,
750.
00
Account
sRecei
v
abl
e
96,
150.
00
Mer
chandi
seI
nv
ent
or
y
145,
250.
00
St
or
eSuppl
i
es
8,
250.
00
Pr
epai
dI
nsur
ance
12,
690.
00
St
or
eEqui
pment
89,
500.
00
Accumul
at
edDepr
eci
at
i
onSt
or
eEqui
pment
25,
300.
00
Account
spay
abl
e
44,
740.
00
Sal
ar
ypay
abl
e
–
Capi
t
al
St
ock
180,
000.
00
Ret
ai
nedEar
ni
ng
81,
445.
00
Di
v
i
dend
60,
000.
00
I
ncomeSummar
y
–
–
Sal
es
953,
500.
00
Sal
esDi
scount
2,
500.
00
Sal
esr
et
ur
nsandal
l
owances
3,
000.
00
Pur
chase
610,
050.
00
Fr
ei
ghti
n
6,
000.
00
Pur
chaseDi
scount
6,
000.
00
Sal
esSal
ar
i
esexpense
77,
400.
00
Adv
er
t
i
si
ngexpense
24,
800.
00
Depr
eci
at
i
onExp.
St
or
eEqui
pment
St
or
eSuppl
i
esexpense
Del
i
v
er
yExpense/
Fr
ei
ghtOut
/
2,
000.
00
Mi
scel
l
aneousSel
l
i
ng–Expense
4,
400.
00
Of
f
i
ceSal
ar
i
esExpense
39,
845.
00
RentExpense
40,
000.
00
Heat
i
ngandl
i
ght
i
ngExpense
16,
100.
00
Taxesexpense
8,
500.
00
I
nsur
anceexpense
Mi
scel
l
aneousGener
al
–expense
3,
600.
00
I
nt
er
estExpense
1,
000.
00
¬¬_
Gai
nondi
sposal
ofequi
pment
3,
800.
00
___
1,
294,
785.
0 1,
294,
785.
0
Tot
al
0
0
50
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
AccountTi
t
l
e
Cash
Account
sRecei
v
abl
e
Mer
chandi
seI
nv
ent
or
y
St
or
eSuppl
i
es
Pr
epai
dI
nsur
ance
St
or
eEqui
pment
Accumul
at
edDepr
eci
at
i
on-SE
Account
spay
abl
e
Sal
ar
yPay
abl
e
Capi
t
al
St
ock
Ret
ai
nedEar
ni
ngs
Di
v
i
dend
I
ncomeSummar
y
Sal
es
Sal
esdi
scount
Sal
esr
et
ur
nsandal
l
owances
Pur
chase
Fr
ei
ghti
n
Pur
chaseDi
scount
Sal
esSal
ar
i
esexpense
Adv
er
t
i
si
ngexpense
Depr
eci
at
i
onExp.
St
or
eEqui
p.
St
or
eSuppl
i
esexpense
Del
i
v
er
yExpense/
Fr
ei
ghtout
/
Mi
scel
l
aneousSel
l
i
ng-expense
Of
f
i
ceSal
ar
i
esExpense
RentExpense
Heat
i
ngandl
i
ght
i
ngExpense
Taxesexpense
I
nsur
anceexpense
Mi
scel
l
aneousGener
al
-expense
I
nt
er
estExpense
Gai
nondi
sposal
ofequi
pment
Tot
al
NetI
ncome
Unadj
ust
edT.
B
Dr
.
Cr
.
43,
750
96,
150
145,
250
8,
250
12,
690
89,
500
25,
300
44,
740
180,
000
81,
445
60,
000
953,
500
2,
500
3,
000
610,
050
6,
000
6,
000
77,
400
24,
800
2,
000
4,
400
39,
845
40,
000
16,
100
8,
500
3,
600
1,
000
_
_
_
_
_
_
_
3,
800
1,
294,
785 1,
294,
785
FAREASTTRADI
NGCORPORATI
ON
WORKSHEET
FORTHEYEARENDEDDEC.
31,
2004
Adj
ust
ment
Adj
ust
edT.
B
Dr
.
Cr
.
Dr
.
Cr
.
43,
750
96,
150
150,
500 145,
250
150,
500
6,
100
2,
150
6,
400
6,
290
89,
500
19,
200
44,
500
44,
740
4,
100
4,
100
180,
000
81,
445
60,
000
145,
250 150,
500
145,
250 150,
500
953,
500
2,
500
3,
000
610,
050
6,
000
6,
000
2,
800
80,
200
24,
800
19,
200
19,
200
6,
100
6,
100
2,
000
4,
400
1,
300
41,
145
40,
000
16,
100
8,
500
6,
400
6,
400
3,
600
1000
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
3,
800
1,
468,
58
331,
550 331,
550 1,
468,
585
5
I
ncomeSt
at
ement
Dr
.
Cr
.
145,
250
Bal
anceSheet
Dr
.
Cr
.
43,
750
96,
150
150,
500
2,
150
6,
290
89,
500
44,
500
44,
740
4,
100
180,
000
81,
445
60,
000
150,
500
953,
500
2,
500
3,
000
610,
050
6,
000
6,
000
80,
200
24,
800
19,
200
6,
100
2,
000
4,
400
41,
145
40,
000
16,
100
8,
500
6,
400
3,
600
1000
3,
800
1,
020,
245
1,
113,
800
448,
340
354,
785
93,
555
_
_
_
_
_
_
_
_
_
_
_
_
_
_
93,
555
51
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
1,
113,
800
1,
113,
800
448,
340
448,
340
52
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
4.
6) Fi
nanci
alSt
at
ement
sForMer
chandi
si
ngBusi
nesses
1.Pr
epar
eI
ncomeSt
at
ementI
nSi
ngl
e-St
epAndMul
t
i
pl
e-St
epFor
ms
A.Mul
t
i
pl
eSt
epI
ncomeSt
at
ement
FarEastTr
adi
ngCor
por
at
i
on
I
ncomeSt
at
ement
Fort
hey
earendedDecember31,
2004
Rev
enues:
I
nETB
I
nETB
Sal
es
953,
500.
00
Less:
Sal
esDi
scount
2,
500.
00
Less:
Sal
esRet
ur
n& Al
l
ow.
3,
000.
00
(
5,
500.
00)
NetSal
es
948,
000.
00
CostofMer
chandi
seSol
d:
Mer
chandi
seI
nv
ent
or
y
,
Januar
y1,
2004
145,
250.
00
Pur
chase
610,
050.
00
Less:
Pur
chaseDi
scount
(
6,
000.
00)
NetPur
chase
604,
050.
00
Add:
Fr
ei
ghti
n
6,
000.
00
CostofMer
chandi
sePur
chased
610,
050.
00
CostofMer
chandi
seAv
ai
l
abl
eForSal
e
755,
300.
00
Less:
Mer
chandi
seI
nv
ent
or
yDecember31,
2004
(
150,
500.
0
0)
CostofMer
chandi
seSol
d
(
604,
800.
00)
Gr
ossPr
of
i
t
:
343,
200.
00
Oper
at
i
ngExpenses:
Sel
l
i
ngExpenses:
Sal
esSal
ar
i
esExpense
80,
200.
00
Adv
er
t
i
si
ngEx
pense
24,
800.
00
Depr
eci
at
i
onExp.
St
or
eEqui
p.
19,
200.
00
St
or
eSuppl
i
esExpense
6,
100.
00
Del
i
v
er
yExpense/
Fr
ei
ght
Out
/
2,
000.
00
Mi
scel
l
aneousSel
l
i
ngExpense
4,
400.
00
Tot
al
Sel
l
i
ngExpense
36,
700.
00
Gener
al
Expenses:
Of
f
i
ceSal
ar
i
esExpense
41,
145.
00
RentExpense
53
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
40,
000.
00
Heat
i
ngandLi
ght
i
ngExpense
16,
100.
00
TaxesExpense
8,
500.
00
I
nsur
anceExpense
6,
400.
00
Mi
scel
l
aneousGener
al
-Expense
Tot
al
Gener
al
Expense
Tot
al
Oper
at
i
ngExpense
I
ncomef
r
om Oper
at
i
on
Ot
herI
ncome:
Gai
nonDi
sposal
ofEqui
pment
Ot
herExpense:
I
nt
er
estExpense
NetI
ncome
3,
600.
00
115,
715.
00
3,
800.
00
(
1,
000.
00)
B.Si
ngl
eSt
epI
ncomeSt
at
ement
FarEastTr
adi
ngCor
por
at
i
on
I
ncomeSt
at
ement
Fort
hey
earendedDecember31,
2004
Rev
enue:
NetSal
es
Ot
herI
ncome
Tot
al
Rev
enue
Cost
sandExpenses:
CostofMer
chandi
seSol
d
Sel
l
i
ngExpense
Gener
al
Expense
Ot
herExpense
(
252,
445.
00)
90,
755.
00
604,
800.
0
0
136,
700.
0
0
115,
745.
0
0
1,
000.
00
2,
800.
00
93,
555.
00
948,
000.
0
0
3,
800.
00
951,
800.
0
0
858,
245.
0
0
93,
555.
00
Tot
al
Expense
NetI
ncome
2.Pr
epar
eaRet
ai
nedEar
ni
ngsSt
at
ement
FarEastTr
adi
ngCor
por
at
i
on
Ret
ai
nedEar
ni
ngSt
at
ement
ForTheYearEndedDecember31,
2004
Ret
ai
nedear
ni
ng,
Januar
y1,
2004
Br81,
445.
00
NetI
ncomef
ort
heYear
93,
555.
00
Less:
Di
v
i
dends
(
60,
000.
0
54
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
0)
I
ncr
easei
nRet
ai
nedEar
ni
ngs
33,
555.
00
Ret
ai
ned ear
ni
ngs December 31,
Br115,
000.
00
2004
3.Pr
epar
eaCl
assi
f
i
edBal
anceSheet
FarEastTr
adi
ngCor
por
at
i
on
Bal
anceSheet
December31,
2004
Asset
s:
I
nETB
Cur
r
entAsset
s:
Cash
43,
750.
00
A/
Recei
v
abl
es
96,
150.
00
Mer
chandi
seI
nv
ent
or
y
150,
500.
0
0
Suppl
i
es
2,
150.
00
Pr
epai
dI
nsur
ance
6,
290.
00
Tot
al
Cur
r
entAsset
s
298,
840.
0
0
Pl
antAsset
s:
St
or
eEqui
pment
:
89,
500.
00
Less:
Accum.Depr
eci
at
i
on–SE
44,
500.
00
Tot
al
Pl
antAsset
s
45,
000.
00
Tot
alAsset
s
343,
840.
0
0
Li
abi
l
i
t
i
esandSt
ockhol
der
s’
Equi
t
y
:
Li
abi
l
i
t
i
es:
Account
sPay
abl
e
44,
740.
00
Sal
ar
yPay
abl
e
4,
100.
00
Tot
al
Li
abi
l
i
t
i
es
48,
840.
00
St
ockHol
der
sEqui
t
y
:
Capi
t
al
St
ock
180,
000.
0
0
Ret
ai
nedEar
ni
ngs
115,
000.
0
0
Tot
al
St
ockhol
der
sEqui
t
y
295,
000.
0
0
Tot
al
Li
abi
l
i
t
i
esandSt
ockhol
der
s'
Equi
t
y
343,
840.
0
0
4.
7) Adj
ust
i
ngandCl
osi
ngEnt
r
i
es
1.Adj
ust
i
ngEnt
r
i
es
Gener
al
Jour
nal
Dat
e
Descr
i
pt
i
on
P/
R
Page1
Debi
t
Cr
edi
t
55
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
1985
Adj
ust
i
ngEnt
r
i
es
3
DEC. 1 I
ncomesummar
y
Mer
chandi
seI
nv
ent
or
y
145,
250
3
1 Mer
chandi
seI
nv
ent
or
y
I
ncomeSummar
y
150,
500
3
1 I
nsur
anceexpense
Pr
epai
dI
nsur
ance
6,
400
3
1 St
or
esuppl
i
esexpense
St
or
eSuppl
i
es
6,
100
3
1 Depr
eci
at
i
onexpense
Accumul
at
edDepr
eci
at
i
on
19,
200
3
1 Sal
essal
ar
i
esexpense
Of
f
i
cesal
ar
i
esexpense
Sal
ar
i
espay
abl
e
2,
800
1,
300
2.Cl
osi
ngEnt
r
i
es
Gener
al
Jour
nal
Cl
osi
ngEnt
r
i
es
3
DEC. 1 Sal
es
Pur
chaseDi
scount
Gai
nondi
sposal
ofequi
pment
P/
R
Debi
t
953,
500
6,
000
3,
800
I
ncomeSummar
y
3
1 I
ncomesummar
y
Sal
esdi
scount
Sal
esRet
ur
n&Al
l
ow.
Pur
chase
Fr
ei
ghti
n
Sal
esSal
ar
i
esexpense
Adv
er
t
i
si
ngexpense
Depr
eci
at
i
onExp.
St
or
e
874,
995
145,
250
150,
500
6,
400
6,
100
19,
200
4,
100
Page1
Cr
edi
t
963,
30
0
2,
500
3,
000
610,
05
0
6,
000
80,
200
24,
800
19,
200
56
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
Equi
p.
St
or
eSuppl
i
esexpense
Del
i
v
er
yExpense/
Fr
ei
ght
out
/
Mi
scel
l
aneousSel
l
i
ngexpense
Of
f
i
ceSal
ar
i
esExpense
RentExpense
Heat
i
ngandl
i
ght
i
ngExpense
Taxesexpense
I
nsur
anceexpense
Mi
scel
l
aneousGener
al
expense
I
nt
er
estExpense
3
Mar
ch 1 I
ncomesummar
y
Ret
ai
nedEar
ni
ngs
3
1 Ret
ai
nedear
ni
ngs
Di
v
i
dend
6,
100
2,
000
4,
400
41,
145
40,
000
16,
100
8,
500
6,
400
3,
600
1000
93,
555
60,
000
93,
555
60,
000
3.PostCl
osi
ngTr
i
alBal
ance
FarEastTr
adi
ngCor
por
at
i
on
PostCl
osi
ngTr
i
alBal
ance
December31,
2005
AccountTi
t
l
e
Dr
.
Cash
43,
750
Account
sRecei
v
abl
e
96,
150
150,
50
Mer
chandi
seI
nv
ent
or
y
0
St
or
eSuppl
i
es
2,
150
Pr
epai
dI
nsur
ance
6,
290
St
or
eEqui
pment
89,
500
Accumul
at
edDepr
eci
at
i
onSt
or
eEqui
p.
Account
spay
abl
e
Sal
ar
yPay
abl
e
Capi
t
al
St
ock
Ret
ai
nedEar
ni
ngs
Tot
al
388,
34
0
Cr
.
44,
500
44,
740
4,
100
180,
00
0
115,
00
0
388,
34
0
57
Chapt
erFour
:
Account
i
ngf
orMer
chandi
si
ngBusi
nesses
4.
8) Cor
r
ect
i
onsofEr
r
or
s
I
ft
her
ei
ser
r
ori
nr
ecor
di
ngt
r
ansact
i
onsorpost
i
ngt
ol
edgeraccount
s,i
twi
l
lbe
cor
r
ect
edt
hr
oughcor
r
ect
i
ngent
r
i
es.Forexampl
eadebi
tpur
chasesaccountmaybe
debi
t
edt
o pl
antassetaccountwhi
l
et
hecr
edi
ti
scor
r
ect
l
yr
ecor
ded.Thus,t
he
cor
r
ect
i
ngwi
l
l
debi
tpur
chasesaccountandcr
edi
tt
hepl
antassetaccountsot
hatt
he
er
r
orwi
l
l
becor
r
ect
ed.
58
Chapt
erFi
v
e:
Account
i
ngf
orDef
er
r
al
sandAccr
ual
s
Chapt
erFi
v
e
Def
er
r
al
sandAccr
ual
s
5.
1) Adj
ust
i
ngf
orDef
er
r
al
s
Def
er
r
al
sar
eanexpenset
hathasal
r
eadybeenpai
dorr
ev
enuet
hathasal
r
eadybeen
r
ecei
v
ed.Def
er
r
al
sar
ecr
eat
edwhenwer
ecor
dat
r
ansact
i
oni
nt
hewayt
hati
tdel
ay
s
ordef
er
sr
ecogni
t
i
on ofan expense al
r
eadypai
d orr
ev
enue al
r
eadyr
ecei
v
ed.
Def
er
r
al
si
ncl
ude def
er
r
ed expense (
pr
epai
d expense) and def
er
r
ed r
ev
enue
(
unear
nedr
ev
enue)
.
A)Def
er
r
edExpense(
Pr
epai
dExpense)
Def
er
r
edExpensei
sanexpenset
hathasbeenpai
dbutdel
ay
edf
orr
ecogni
t
i
on.At
t
het
i
meanexpensei
spai
d,i
tmaybedebi
t
edei
t
hert
oanassetaccountort
oan
expense.Exampl
es:suppl
i
es,pr
epai
di
nsur
ance,pr
epai
dr
ent
,pr
epai
di
nt
er
est
,et
c.
Def
er
r
edExpensemayi
ni
t
i
al
l
yber
ecor
dedasanassetorasanexpense.
Pr
epai
dExpenseI
ni
t
i
al
l
yRecor
dedAsanAsset
Adv
ancepay
ment
sorpr
epay
ment
sf
ordef
er
r
edexpensei
sr
ecor
dedasdebi
t
st
ot
he
appr
opr
i
at
eassetaccountev
ent
houghal
lorapar
tpr
epay
menti
sexpect
edt
obe
usedorconsumeddur
i
ngt
heaccount
i
ngper
i
od.Thus,
 Theadj
ust
i
ngent
r
yt
r
ansf
er
st
heamountusedorexpi
r
eddur
i
ngt
heper
i
odt
o
t
heexpenseaccount
 Theamountunusedr
emai
nsi
nassetaccount
 Rev
er
si
ngent
r
yi
snotr
equi
r
ed
I
l
l
ust
r
at
i
on5.
1:assumet
hatt
heunexpi
r
edi
nsur
ancef
orOLYMPI
C Companyon
Januar
y1,2003amount
edt
oBr7,
000.OnJanuar
y2,t
heCompanypur
chased
addi
t
i
onali
nsur
ancepol
i
cyf
orat
ot
alofBr12,
000.Assumef
ur
t
hert
hatBr14,
000of
t
hepr
emi
um ort
hei
nsur
ancepol
i
cyi
sexpi
r
eddur
i
ngt
hey
earandt
heCompany
f
ol
l
owst
hesy
st
em ofr
ecor
di
ngpr
epay
mentf
ori
nsur
anceasanasset
.Recor
dt
he
Tr
ansact
i
ons:
I
ni
t
i
alRecor
di
ng: Pr
epai
dI
nsur
ance
12,
000
Januar
y2,
2003
Cash
12,
000
Adj
ust
i
ng:
December
2003
31,
I
nsur
anceExpense
Pr
epai
dI
nsur
ance
14,
000
Cl
osi
ng:
December
2003
31,
I
ncomeSummar
y
I
nsur
anceExpense
14,
000
Rev
er
si
ng:
14,
000
14,
000
Rev
er
si
ngi
snotr
equi
r
ed
59
Chapt
erFi
v
e:
Account
i
ngf
orDef
er
r
al
sandAccr
ual
s
Pr
epai
dExpenseI
ni
t
i
al
l
yRecor
dedAsanExpense
I
nt
hi
smet
hod:
 Pr
epay
ment
sf
ordef
er
r
edexpensei
sdebi
t
edt
ot
heexpenseaccount
s
 Theadj
ust
i
ngent
r
yt
r
ansf
er
st
heamountunusedorunexpi
r
edf
r
om expense
accountt
ot
heassetaccount
 Theamountexpi
r
edorusedr
emai
nsi
nt
heexpenseaccountandcl
osedatt
he
end.
 Rev
er
si
ngent
r
yi
sr
equi
r
ed-anent
r
ywhi
chi
smadeatt
hebegi
nni
ngoft
he
per
i
odt
ocompl
ywi
t
ht
hei
ni
t
i
alr
ecor
di
ngsy
st
em andt
heexactr
ev
er
seoft
he
adj
ust
i
ngent
r
y
I
l
l
ust
r
at
i
on5.
2:Assumeal
lt
hedat
ai
nt
heabov
ei
l
l
ust
r
at
i
onexceptt
hatt
hebusi
ness
f
ol
l
owst
hesy
st
em ofr
ecor
di
ngpr
epai
di
nsur
anceasanexpenseandt
hatt
he
i
nsur
ancepol
i
cyt
hatappl
i
est
ot
hef
ut
ur
eper
i
odi
sf
oundt
obeBr5,
000.Recor
dal
l
t
henecessar
yt
r
ansact
i
ons:
I
ni
t
i
alRecor
di
ng: I
nsur
anceExpense
12,
000
Januar
y2,
2003
Cash
12,
000
Adj
ust
i
ng:
December
2003
Pr
epai
dI
nsur
ance
31,
I
nsur
anceExpense
5,
000
Cl
osi
ng:
December
2003
I
ncomeSummar
y
31,
I
nsur
anceExpense
14,
000
5,
000
14,
000
Rev
er
si
ng:
I
nsur
anceExpense
5,
000
Januar
y1,
2004
Pr
epai
dI
nsur
ance
5,
000
NOTE:I
nt
hi
ssy
st
em t
heasset
saccountwi
l
lhav
eazer
obal
ancewher
east
he
expensewi
l
lhav
eabal
ance.Thi
sbal
ancei
snotanexpenser
at
heri
ti
sanasset
.
Rev
er
si
ngent
r
yt
r
ansf
er
st
heamountunusedbackt
oanexpenseaccounti
.
e.t
he
amounti
npr
epai
di
nsur
anceatt
hebegi
nni
ngoft
henewper
i
odi
st
r
ansf
er
r
edt
ot
he
expense.
B)Def
er
r
edRev
enue(
Unear
nedRent
)
Def
er
r
edr
ev
enuei
sr
ev
enuet
hathasbeenr
ecei
v
edbutdel
ay
edf
orr
ecogni
t
i
on.
Def
er
r
ed r
ev
enue i
ncl
udes money r
ecei
v
ed i
n adv
ance such as magazi
ne
subscr
i
pt
i
on,t
ui
t
i
onf
eer
ev
i
sedbyschool
,uni
v
er
si
t
i
esorcol
l
ege,moneyr
ecei
v
edby
adv
er
t
i
si
ngcompani
es.Def
er
r
edRev
enuei
si
ni
t
i
al
l
yr
ecor
dedei
t
herasanassetoras
anexpense.
Def
er
r
edRev
enueI
ni
t
i
al
l
yRecor
dedAsaLi
abi
l
i
t
y
I
fDef
er
r
edRev
enuei
si
ni
t
i
al
l
yr
ecor
dedasal
i
abi
l
i
t
y
,
t
hen:
 Theadj
ust
i
ngent
r
yt
r
ansf
er
st
heamountear
ned dur
i
ngt
heper
i
odf
r
om t
he
l
i
abi
l
i
t
yt
ot
her
ev
enueaccount
60
Chapt
erFi
v
e:
Account
i
ngf
orDef
er
r
al
sandAccr
ual
s
 Theamountunear
nedr
emai
nsi
nt
hel
i
abi
l
i
t
yaccount
 Rev
er
si
ngent
r
yi
snotr
equi
r
ed
Def
er
r
edRev
enueI
ni
t
i
al
l
yRecor
dedAsanaRev
enue
I
nt
hi
smet
hod:
 Cashr
ecei
v
edi
nadv
ancei
scr
edi
t
edt
ot
her
ev
enueaccount
s
 Theadj
ust
i
ngent
r
yt
r
ansf
er
st
heamountunear
nedf
r
om t
her
ev
enueaccountt
o
t
hel
i
abi
l
i
t
yaccount
 Theamountear
nedr
emai
nsi
nt
heRev
enueaccountandcl
osedatt
heend
 Rev
er
si
ngent
r
yi
sr
equi
r
ed
I
l
l
ust
r
at
i
on5.
3:OnNov
ember1,2004OLYMPI
CCOMPANYr
ent
edt
hepor
t
i
onofi
t
s
bui
l
di
ngbyr
ecei
v
i
ngBr1200i
nadv
ancef
ort
hr
eemont
hst
i
me.Thef
i
scalper
i
od
ends on December31,2004 I
nst
r
uct
i
on:Make t
he necessar
yj
our
nalent
r
i
es
assumi
ngt
hatt
hesy
st
em ofr
ecor
di
ngUnear
nedRenti
ni
t
i
al
l
yasar
ev
enueandas
l
i
abi
l
i
t
y
:
AsaLi
abi
l
i
t
y
AsaRev
enue
Nov
.
1, Cash
1,
20
Cash
1,
20
2004
0
0
Unear
nedRent
1,
20
RentI
ncome
1,
20
0
0
Dec.
31 Unear
nedRent
,
RentI
ncome
2004
800
Dec.
31 RentI
ncome
,
I
ncome
2004
Summar
y
800
Jan.1, Rev
er
si
ngi
snotr
equi
r
ed
2005
800
800
RentI
ncome
Unear
nedRent
400
RentI
ncome
I
ncome
Summar
y
800
Unear
nedRent
RentI
ncome
400
400
800
400
5.
2) Adj
ust
i
ngf
orAccr
ual
s
Anaccr
uali
sanexpenset
hathasbeeni
ncur
r
edbutnotpai
dorr
ev
enuet
hathas
beenear
nedbutnotr
ecei
v
ed.Accr
ual
si
ncl
udeaccr
uedexpense(
accr
uedl
i
abi
l
i
t
y
)
andaccr
uedr
ev
enue(
Accr
uedAsset
)
.
A)Accr
uedExpenseorAccr
uedLi
abi
l
i
t
y
I
l
l
ust
r
at
i
on5.
4:assumet
hatonDecember31,
2003t
heendoff
i
scal
y
earsal
essal
ar
y
expenseandof
f
i
cesal
ar
yexpenseaccountf
orXYZPLChav
edebi
tbal
ancesofBr
86,
000and60,
000,r
espect
i
v
el
y
.Fort
her
easont
hatpay
mentdat
ei
sdi
f
f
er
entf
r
om
t
heendoft
heaccount
i
ngper
i
od,t
het
ot
alsal
ar
yaccr
uedi
sBr10,
000outofwhi
ch
4,
000 wasof
f
i
cesal
ar
yexpense.Assumet
hatt
hebusi
nesspai
d Br20,
000 on
Januar
y15,2004outwhi
chBr8,
000wasf
orOf
f
i
cesal
ar
yExpensei
ncl
udi
ngt
he
accr
ued sal
ar
y
.I
nst
r
uct
i
on:Recor
d al
lt
henecessar
yent
r
i
esassumi
ng t
hatt
he
61
Chapt
erFi
v
e:
Account
i
ngf
orDef
er
r
al
sandAccr
ual
s
busi
ness:
A) Doesnotuset
hepol
i
cyofr
ev
er
si
ngent
r
y
B) Usest
hepol
i
cyofr
ev
er
si
ngent
r
y
Wi
t
houtRev
er
si
ngEnt
r
y
:
December31
December31
Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
Sal
ar
yPay
abl
e
6,
000
4,
000
I
ncomeSummar
y
156,
00
0
Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
10,
000
92,
000
64,
000
Jan.1,
2004: NoRev
er
si
ngEnt
r
y
Jan.15,
2004: Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
Sal
ar
yPay
abl
e
Cash
6,
000
4,
000
10,
000
December31
Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
Sal
ar
yPay
abl
e
6,
000
4,
000
I
ncomeSummar
y
156,
00
0
Wi
t
hRev
er
si
ngEnt
r
y
:
December31
Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
Jan.1,
2004: Sal
ar
yPay
abl
e
Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
10,
000
Jan.15,
2004: Sal
esSal
ar
yExpense
Of
f
i
ceSal
ar
yExpense
Cash
12,
000
8,
000
20,
000
10,
000
92,
000
64,
000
6,
000
4,
000
20,
000
I
l
l
ust
r
at
i
on5.
5:OnNov
ember1,2003AACompanybor
r
owedBr60000f
r
om CBE
i
ssui
ngapr
omi
ssor
ynot
epay
abl
eshowi
ng12% i
nt
er
estwher
ebyt
hel
oanand
i
nt
er
estwi
l
lbepai
daf
t
erf
ourmont
hs(
Mar
ch1,2004)
.Thecompanyhasaf
i
scal
per
i
odt
hatendsonDecember31andt
hei
nt
er
estexpenseaccounthasabal
anceof
Br17000aty
earend.Maket
henecessar
yj
our
nalent
r
i
esf
ort
heCompanyassumi
ng
t
hatt
hecompany
:
A)doesnotuset
her
ev
er
si
ngent
r
y
B) uset
hepol
i
cyr
ev
er
si
ngent
r
y
Wi
t
hOutRev
er
si
ngEnt
r
y
:
Nov
.1,
2003 Ca
60,
000
sh
62
Chapt
erFi
v
e:
Account
i
ngf
orDef
er
r
al
sandAccr
ual
s
Not
esPay
abl
e
60,
000
Dec.31,
2003 I
nt
er
estExpense
I
nt
er
estPay
abl
e
1,
200
Dec.31,
2003 I
ncomeSummar
y
18,
200
I
nt
er
estExpense
Jan.1,
2004
18,
200
NoRev
er
si
ngEnt
r
y
Mar
ch1,
2004 Not
esPay
abl
es
I
nt
er
estPay
abl
e
I
nt
er
estExpense
Cash
Wi
t
hOutRev
er
si
ngEnt
r
y
:
Nov
.1,
2003 Ca
sh
Not
esPay
abl
e
60,
000
1,
200
1,
200
60,
000
Dec.31,
2003 I
nt
er
estExpense
I
nt
er
estPay
abl
e
1,
200
Dec.31,
2003 I
ncomeSummar
y
18,
200
I
nt
er
estExpense
Jan.1,
2004
1,
200
I
nt
er
estPay
abl
e
I
nt
er
estExpense
Mar
ch1,
2004 Not
esPay
abl
es
I
nt
er
estExpense
Cash
1,
200
60,
000
2,
400
62,
400
60,
000
1,
200
18,
200
1,
200
62,
400
B) Accr
uedRev
enueorAccr
uedAsset
s
Thesear
ei
t
emsofr
ev
enuet
hathav
ebeenear
nedatt
heendoft
heaccount
i
ng
per
i
odbutnotr
ecor
dedbecausecashi
snotr
ecei
v
ed.Si
ncet
hebusi
nessr
ecogni
zi
ng
bot
hr
ev
enueandasset
si
ti
ssocal
l
edAccr
uedRev
enueorAccr
uedAsset
s.
I
l
l
ust
r
at
i
on5.
6:OnSept
ember1,2000BBAudi
t
i
ngFi
r
m ent
er
edi
nt
oacont
r
actwi
t
h
Di
r
eDawaFoodCompl
ext
opr
ov
i
deaudi
t
i
ngser
v
i
cef
or6mont
hsf
orat
ot
alofBr
36,
000Pay
abl
ewhent
heser
v
i
cei
scompl
et
ed.Thef
eesi
ncomeaccountoft
hef
i
r
m
hasacr
edi
tbal
anceofBr126,
000andt
hatt
hef
i
r
m hasaf
i
scaly
earendi
ngon
December31.Maket
henecessar
yj
our
nal
ent
r
i
esf
ort
hef
i
r
m assumi
ngt
hat
A) Rev
er
si
ngEnt
r
yi
snotUsed
B) Rev
er
si
ngEnt
r
yI
sUsed
Wi
t
hNoRev
er
si
ngEnt
r
y
:
Dec.31,
2000 FeesRecei
v
abl
es
FeesRev
enue
24,
000
24,
000
63
Chapt
erFi
v
e:
Account
i
ngf
orDef
er
r
al
sandAccr
ual
s
Dec.31,
2000 FeesRev
enues
I
ncomeSummar
y
Jan.1,
2001
150,
00
0
NoRev
er
si
ng
Mar
ch1,
2001 Cash
FeesRecei
v
abl
es
FeesRev
enue
Wi
t
hRev
er
si
ngEnt
r
y
:
36,
000
Dec.31,
2000 FeesRecei
v
abl
es
FeesRev
enue
24,
000
Dec.31,
2000 FeesRev
enues
150,
00
0
I
ncomeSummar
y
Jan.1,
2001
150,
00
0
FeesRev
enues
FeesRecei
v
abl
es
Mar
ch1,
2001 Cash
FeesRev
enue
24,
000
36,
000
24,
000
12,
000
24,
000
150,
00
0
24,
000
36,
000
64
Chapt
erSi
x:
Account
i
ngSy
st
emsDesi
gn
Chapt
erSi
x
Account
i
ngSy
st
emsDesi
gn
Account
i
ngsy
st
em i
sasy
st
em whi
chpr
ov
i
dest
hei
nf
or
mat
i
onf
orusei
nconduct
i
ng
t
heaf
f
ai
r
soft
hebusi
nessandi
nr
epor
t
i
ngt
oowner
s,cr
edi
t
or
sandot
heri
nt
er
est
ed
par
t
i
es.I
nagener
alsense,anaccount
i
ngsy
st
em i
ncl
udest
heent
i
r
enet
wor
kof
communi
cat
i
onsusedbyabusi
nessor
gani
zat
i
ont
opr
ov
i
deneededi
nf
or
mat
i
on.I
t
consi
st
sofbusi
nesspaper(
sour
cedocument
)
,r
ecor
ds(
j
our
nal
sandl
edger
)and
r
epor
t
s(
f
i
nanci
al
st
at
ement
s)
.
6.
1) Pr
i
nci
pl
esofAccount
i
ngSy
st
ems
Becauseofdi
f
f
er
encesi
nbusi
nesses,
i
nnumberoft
r
ansact
i
onst
obepr
ocessedand
i
nt
heusesmadeofaccount
i
ngdat
a,account
i
ngsy
st
emswi
l
lv
ar
yf
r
om busi
nesst
o
busi
ness.How ev
er
,t
her
ear
eanumberofbr
oadpr
i
nci
pl
est
hatar
edi
scussedas
f
ol
l
owsandappl
yt
oal
l
sy
st
ems:
 Cost
-Ef
f
ect
i
v
enessBal
ance
Themaj
orconsi
der
at
i
onsi
ndev
el
opi
ngordesi
gni
nganaccount
i
ngsy
st
em ar
ecost
ef
f
ect
i
v
eness.Thati
st
obal
ancet
hebenef
i
t
sagai
nstt
hecosti
nf
or
mat
i
on.Costof
i
nf
or
mat
i
onatl
eastshoul
dbeequal
t
ot
hebenef
i
tofi
nf
or
mat
i
on
 Fl
exi
bi
l
i
t
yt
oMeetFut
ur
eNeeds
Anaccount
i
ngsy
st
em mustbef
l
exi
bl
eenought
omeetchangi
ngdemandsoft
he
busi
nesseswor
l
d.Thebusi
nessmustadaptt
ot
heconst
ant
l
ychangi
ngenv
i
r
onment
i
n whi
ch i
toper
at
es.Forexampl
e,changes i
n account
i
ng pr
i
nci
pl
es ordat
a
pr
ocessi
ng t
echnol
ogy orot
herf
act
or
s shoul
d compl
y wi
t
ht
he gov
er
nment
r
egul
at
i
ons.
 Adequat
eI
nt
er
nalCont
r
ol
s
An account
i
ng s
y
st
em mustpr
ov
i
de i
nf
or
mat
i
on whi
ch hel
p managementi
n
pl
anni
ngandcont
r
ol
l
i
ngact
i
v
i
t
i
es.Thesy
st
em shoul
dai
dmanagementi
ndi
r
ect
i
ng
oper
at
i
ons.Thedet
ai
l
ed pol
i
ci
esand pr
ocedur
esused t
o di
r
ectoper
at
i
onsand
pr
ov
i
der
easonabl
eassur
ancet
hatent
i
t
y
’
sobj
ect
i
v
esar
eachi
ev
edar
ecal
l
edi
nt
er
nal
cont
r
ol
s.Anaccount
i
ngsy
st
em shoul
dshowanydev
i
at
i
onf
r
om t
hei
nt
er
nalcont
r
ol
s
st
r
uct
ur
e.
 Ef
f
ect
i
v
eRepor
t
i
ng
Whenr
epor
t
s(
f
i
nanci
alI
nf
or
mat
i
on)ar
epr
epar
ed,t
her
equi
r
ement
sandknowl
edge
oft
heusershoul
dber
ecogni
zed.Forexampl
e,managementmayneeddet
ai
l
ed
basi
s,
andr
egul
at
or
yagenci
esof
t
enr
equi
r
euni
f
or
m dat
a.
 Adapt
at
i
ont
oOr
gani
zat
i
onalSt
r
uct
ur
e
Di
f
f
er
entbusi
nesses may hav
e di
f
f
er
entor
gani
zat
i
onalst
r
uct
ur
e and l
ev
elof
management
.Ther
ef
or
e,anaccount
i
ngsy
st
em t
hatgoeswi
t
ht
heor
gani
zat
i
onal
st
r
uct
ur
e mustbe desi
gned t
o meett
he i
nf
or
mat
i
on needs of al
ll
ev
elof
managementatt
hel
owestcost
.
6.
2) Account
i
ngSy
st
em I
nst
al
l
at
i
onandRev
i
si
on
65
Chapt
erSi
x:
Account
i
ngSy
st
emsDesi
gn
Bef
or
edesi
gni
ngandi
nst
al
l
i
ngorr
ev
i
ewi
nganaccount
i
ngsy
st
em f
oranent
er
pr
i
se,
t
hedesi
gnermusthav
eacompl
et
eknowl
edgeoft
hebusi
nessoper
at
i
ons.The
desi
gnershoul
dr
ecogni
zet
hatsomear
easoft
hesy
st
em,suchast
het
y
pesand
desi
gnoft
hef
or
msneededandt
henumberandt
i
t
l
esoft
heaccount
sr
equi
r
ed,
may
beaf
f
ect
edbyf
act
or
st
hatar
enotknownwhenabusi
nessi
sf
i
r
stor
gani
zed.As
new i
nf
or
mat
i
onaboutabusi
nessi
sobt
ai
ned and asabasi
ns“
outgr
ows”or
expandst
onewoper
at
i
onal
ar
eas,
t
hesy
st
em wi
l
l
needt
ober
ev
i
sed.
Many l
ar
ge busi
nesses cont
i
nual
l
yr
ev
i
ew t
hei
raccount
i
ng sy
st
em and may
const
ant
l
ybei
nv
ol
v
edi
nchangi
ngsomepar
tofi
t
.Thej
obofi
nst
al
l
i
ngorchangi
ng
anaccount
i
ngsy
st
em,
ei
t
heri
ni
t
sent
i
r
et
yoronl
yi
npar
t
,
i
smadeupoft
hr
eephases:
 Sy
st
em Anal
y
si
s
 Sy
st
em Desi
gnand
I
mpl
ement
at
i
on
1.Sy
st
em Anal
y
si
s
Thegoalofsy
st
em anal
y
si
si
st
odet
er
mi
nei
nf
or
mat
i
onneedsandsour
cesofsuch
i
nf
or
mat
i
on,anddef
i
ci
enci
esi
npr
ocedur
esanddat
apr
ocessi
ngmet
hodspr
esent
l
y
used.Thesy
st
em anal
y
stshoul
ddet
er
mi
nemanagement
’
spl
ansf
orchangesi
n
oper
at
i
onssuchasv
ol
ume,
pr
oduct
s,
t
er
r
i
t
or
i
es,
et
c.
2.Sy
st
em Desi
gn
Thi
sdeal
swi
t
hdet
er
mi
ni
ngt
her
equi
r
ementoft
henew sy
st
em andchangi
ngi
t
basedont
her
esul
toft
hesy
st
em anal
y
si
s.I
nt
hi
sst
ageapr
oposalf
ort
henew
sy
st
em i
spr
epar
edandf
i
nal
i
zed.
3.Sy
st
em I
mpl
ement
at
i
on
Thef
i
nal
st
ageoft
hecr
eat
i
onorr
ev
i
si
onofanaccount
i
ngsy
st
em i
st
ocar
r
yout
,
or
i
mpl
ementt
hepr
oposal
sf
r
ot
henewsy
st
em.I
ti
ncl
udes:
 I
nst
al
l
i
ngneworr
ev
i
sedf
or
ms,
r
ecor
ds,
pr
ocedur
esandequi
pment
 Tr
ai
ni
ngandsuper
v
i
si
ngal
lper
sonnelr
esponsi
bl
ef
oroper
at
i
ngt
hesy
st
em unt
i
l
sat
i
sf
act
or
yef
f
i
ci
encyi
sachi
ev
ed.
 Theol
dsy
st
em i
schangedov
ert
i
mebynewsy
st
em.Thi
si
sdonegr
adual
l
yov
er
an ext
ended per
i
od r
at
hert
han al
latonce.Weakness and conf
l
i
ct
i
ng or
unnecessar
yel
ement
si
nt
he desi
gn mayal
so become appar
entdur
i
ng t
he
i
mpl
ement
at
i
on.
6.
3) I
nt
er
nalCont
r
olPr
i
nci
pl
esandSt
r
uct
ur
e
I
nt
er
nalcont
r
olst
r
uct
ur
econsi
st
soft
hepol
i
ci
esandpr
ocedur
esest
abl
i
shedt
opr
ov
i
de
r
easonabl
eassur
ancet
hatt
heent
i
t
y
’
sobj
ect
i
v
ewi
l
lbeachi
ev
ed.Thi
si
nt
er
nalcont
r
ol
st
r
uct
ur
ecanbedi
v
i
dedi
nt
ot
hr
eeel
ement
s:(
1)t
hecont
r
olenv
i
r
onment
,(
2)t
hecont
r
ol
pr
ocedur
es,
and(
3)t
heaccount
i
ngsy
st
em,
eachofwhi
chi
sdi
scussedasf
ol
l
ows:
1.TheCont
r
olEnv
i
r
onment
The cont
r
olenv
i
r
onmentr
epr
esent
s an ov
er
al
lat
t
i
t
ude t
owar
d and awar
eness oft
he
i
mpor
t
anceofcont
r
ol
sbymanagementandot
herempl
oy
ees.Fact
or
si
nf
l
uenci
ngt
hecont
r
ol
env
i
r
onmentofanent
er
pr
i
sei
ncl
udemanagement
’
sphi
l
osophyandoper
at
i
ngst
y
l
e,t
he
or
gani
zat
i
onal
st
r
uct
ur
eoft
heent
er
pr
i
seandper
sonnel
pol
i
ci
esandpr
act
i
ces.
66
Chapt
erSi
x:
Account
i
ngSy
st
emsDesi
gn
2.TheCont
r
olPr
ocedur
es
The gener
alcont
r
olpr
ocedur
es (
st
r
ong i
nt
er
nalcont
r
olgui
del
i
nes)whi
ch appl
yt
o al
l
or
gani
zat
i
ont
hr
oughanaccount
i
ngsy
st
em ar
e:
 Compet
entPer
sonnelandRot
at
i
onofDut
i
es
Al
laccount
i
ngsy
st
em r
equi
r
espr
ocedur
est
oensur
et
hatpeopl
ear
eabl
et
oper
f
or
mt
he
dut
i
est
owhi
cht
heyar
eassi
gned.I
ti
sal
soadv
i
sabl
et
or
ot
at
ecl
er
i
calper
sonnelper
i
odi
cal
l
y
f
r
om j
obt
oj
ob.
 Assi
gnmentofr
esponsi
bi
l
i
t
y
I
fempl
oy
eesar
et
owor
kef
f
i
ci
ent
l
y
,
t
hei
rr
esponsi
bi
l
i
t
i
esmustbecl
ear
l
ydef
i
ned
 Separ
at
i
onofr
esponsi
bi
l
i
t
y
Ther
esponsi
bi
l
i
t
yf
orasequenceofr
el
at
edoper
at
i
onsshoul
dbedi
v
i
dedamongt
woormor
e
per
sons.Forexampl
e,noonei
ndi
v
i
dualshoul
dbeaut
hor
i
zedt
oor
dermer
chandi
se,v
er
i
f
y
t
her
ecei
ptoft
hemer
chandi
seandpayt
hesuppl
i
er
.Thati
spur
chasi
ng,r
ecei
v
i
ngand
pay
mentshoul
dbesepar
at
ed.Thebusi
nessdocument
spr
epar
edasar
esul
toft
hewor
kof
eachdepar
t
mentmustf
i
twi
t
ht
hosepr
epar
edbyt
heot
herdepar
t
ment
s
 Adequat
eDocument
at
i
on
Ther
ei
scont
r
ol
wi
t
houtadequat
edocument
at
i
on.
 Separ
at
i
onofaccount
i
ngandoper
at
i
ons
Ther
esponsi
bi
l
i
t
yf
ormai
nt
ai
ni
ngt
heaccount
i
ngr
ecor
dsshoul
dbesepar
at
edf
r
om t
he
r
esponsi
bi
l
i
t
yf
orengagi
ngi
nt
hebusi
nesst
r
ansact
i
onandf
ort
hecust
odyoft
hef
i
r
m’
sasset
.
Acashi
ershoul
dbenothav
i
ngaccesst
ot
hej
our
nal
andl
edger
.
 Pr
oof
sandSecur
i
t
yMeasur
es
Thi
scont
r
olpr
ocedur
ei
ncl
udest
heuseofbankaccountandsaf
ekeepi
ngmeasur
esf
orcash
andot
herv
al
uabl
edocument
s,
cashr
egi
st
er
smachi
net
or
ecor
ddai
l
ycashsal
esandf
i
del
i
t
y
i
nsur
ance.
I
ndependentRev
i
ew
Todet
er
mi
newhet
heri
nt
er
nalcont
r
olpr
ocedur
esar
ebei
ngef
f
ect
i
v
el
yappl
i
ed,
t
hecont
r
olst
r
uct
ur
eshoul
dbeper
i
odi
cal
l
yr
ev
i
ewedandev
al
uat
edbyi
nt
er
nal
audi
t
or
s.I
nt
er
nalaudi
t
or
s shoul
dr
epor
tany weakness and r
ecommend
changest
ocor
r
ectt
hem
3.TheAccount
i
ngSy
st
em
TheAccount
i
ngsy
st
em i
sani
nt
egr
alpar
toft
hei
nt
er
nalcont
r
olst
r
uct
ur
eof
anent
er
pr
i
se.Wi
t
houtt
hei
nf
or
mat
i
ongener
at
edbyt
heaccount
i
ngsy
st
em,
managementwoul
dl
ackt
heabi
l
i
t
yt
opl
ananddi
r
ectoper
at
i
onsi
nachi
ev
i
ng
goal
sandobj
ect
i
v
es.
6.
4) Dat
a Pr
ocessi
ng Met
hods:Speci
alJour
nal
s and Subsi
di
ar
y
Ledger
s
Dependi
ngupont
hev
ar
i
et
yandt
heamountofdat
ai
ncl
udedi
nt
hedat
abase,
v
ar
i
ous
pr
ocessi
ngmet
hods-manualandcomput
er
i
zedmaybeused.Thesepr
ocessi
ng
met
hodsmayusespeci
alj
our
nal
sandsubsi
di
ar
yl
edger
st
opr
ocessanaccount
i
ng
dat
a.
67
Chapt
erSi
x:
Account
i
ngSy
st
emsDesi
gn
Speci
alJour
nal
s:ar
ej
our
nal
susedt
or
ecor
donl
yonet
y
peoft
r
ansact
i
on.I
ti
s
especi
al
l
yusef
ult
oaccumul
at
eat
r
ansact
i
onwi
t
hr
ecur
r
entnat
ur
e.Thi
ssav
est
i
me
andcost
s.Forexampl
e:
mostbusi
nessesuset
hef
ol
l
owi
ngf
ourspeci
al
j
our
nal
s:
 Pur
chasesj
our
nal
 Cashpaymentj
our
nal
 Sal
esj
our
nal
 Cashr
ecei
pt
sj
our
nal
Subsi
di
ar
yLedger
s:l
edger
st
hatar
eusedt
opr
ov
i
dedet
ai
li
nf
or
mat
i
onabout
a gener
all
edger account
s. Subsi
di
ar
yl
edger
s may i
ncl
ude account
s
r
ecei
v
abl
es, account pay
abl
es, subscr
i
ber
’
s subsi
di
ar
y l
edger
s, st
ock
subsi
di
ar
yl
edger
s,
et
c.
68
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
Chapt
erSev
en
Account
i
ngForCashandTempor
ar
yI
nv
est
ment
s
7.
1) Cont
r
ol
sov
erCash
Def
i
ni
t
i
onofCash:i
samedi
um ofexchanget
hatabankaccept
sf
ordeposi
tand
usedi
mmedi
at
el
y
.Aspert
hi
sdef
i
ni
t
i
on,cashi
ncl
udest
hef
ol
l
owi
ngi
t
ems:coi
ns,
cur
r
enci
es,change f
und,pet
t
ycash f
und,bal
ances i
nt
he unr
est
r
i
ct
ed sav
i
ngs
accountandchecki
ngaccount
,bankdebi
tcar
ds,bankcr
edi
tcar
dssuchasmast
er
andv
i
sacar
dswhi
char
eaccept
abl
ebyt
hecommer
ci
albanks,
moneyor
der
s(
post
al
orbank)
,t
r
av
el
er
schecks,CPO,per
sonalchecks,bankdr
af
t
s,undeposi
t
edcash
r
ecei
pt(
cashonhand)
.
NonCashI
t
ems:Ev
eni
fal
li
t
emsot
hert
hancashar
enoncashonessomenoncash
i
t
emsar
econf
usi
ngwi
t
hcashandt
heyar
ewor
t
hdi
scussi
ngatt
hi
spoi
nti
nt
i
me.
I
ncl
uded i
nt
hi
s cat
egor
yar
e: NSF checkr
ecei
v
abl
e,P
ostdat
ed checkr
ecei
v
abl
e,
post
age st
ampssuppl
i
es ori
nv
ent
or
y
,I
OUsr
ecei
v
abl
e,t
r
easur
ybi
l
l
sr
ecei
v
abl
es,
cer
t
i
f
i
cat
eofdeposi
t
sshor
tt
er
mi
nv
est
ment
s,compensat
i
ngbal
ancessomeot
her
asset
,t
r
av
eladv
ancesr
ecei
v
abl
e,bankbal
ancei
nt
hebl
ockedaccount
someot
her
asset
,sav
i
ng accountbal
ancessome ot
herasset
,i
fi
thas gotsome sor
tof
r
est
r
i
ct
i
onssuchasnotbeabl
et
owi
t
hdr
aw,say
,Bi
r
r5,
000unl
esspr
i
ornot
i
ceof10
day
sar
eser
v
ed.Howev
er
,sav
i
ngsaccount
sar
eusual
l
ycl
assi
f
i
edascashal
t
hough
t
hebankhast
her
i
ghtt
odemandnot
i
cebef
or
ewi
t
hdr
awali
nt
hatbanksr
ar
el
y
exer
ci
set
hepr
i
v
i
l
egeofpr
i
ornot
i
ce.
Obj
ect
i
v
esofCashmanagementandcont
r
ol
:t
her
emustbest
r
ongcont
r
ol
ov
ercash
because:
 Cashent
er
smanyt
r
ansact
i
onsi
nt
hef
or
m ofpay
i
ngandr
ecei
v
i
ngandi
ti
s
v
ul
ner
abl
et
omi
sappr
opr
i
at
i
onandembez
zl
ement
 Cashl
acksi
dent
i
f
i
cat
i
onofowner
shi
p.
Tomai
nt
ai
nt
heopt
i
malamountofcashi
.
e.t
heamountofcashshoul
dbecar
ef
ul
l
y
r
egul
at
edsot
hatnei
t
hert
oomuchnort
ool
i
t
t
l
ei
sav
ai
l
abl
eatanyt
i
me.I
ft
her
ei
s
excessi
thast
obei
nv
est
edt
empor
ar
i
l
yt
osecur
edi
v
i
dends,
i
nt
er
estorot
herf
or
m of
r
ev
enue.I
fshor
t
agei
spr
edi
ct
edr
el
ev
antsour
cesoff
i
nanci
ngshoul
dbeenv
i
saged
wel
li
nadv
ancef
ai
l
ur
eofwhi
chdi
sr
upt
st
heoper
at
i
onoft
hebusi
nessor
gani
zat
i
on,
casesofi
l
l
l
i
qui
di
t
yi
nt
heshor
tt
er
m andi
nsol
v
encyi
nt
hel
ongt
er
m whi
chmi
ght
l
ead,
att
i
mes,
t
ol
i
qui
dat
i
on.
Cashi
st
heassetmostl
i
kel
yt
obeusedi
mpr
oper
l
ybyempl
oy
eessoi
tmustbe
ef
f
ect
i
v
el
ysaf
eguar
dedbyspeci
alcont
r
ol
.Busi
nessesusedi
f
f
er
entt
echni
quest
o
cont
r
olcash.Somet
hesecont
r
ol
sar
eusef
ult
ocont
r
olov
ercashr
ecei
pt
swhi
l
e
somear
eusef
ul
t
ocont
r
ol
ov
ercashpay
ment
s.
I
nt
er
nalcont
r
ol
sov
ercashr
ecei
pt
s
 Useofcashr
egi
st
ermachi
ne
69
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
 Useofpr
enumber
edandconsecut
i
v
esal
est
i
cket
s
 Twoormor
eper
sonsshoul
dopenandr
ecor
dt
hecashr
ecei
pt
st
hr
ought
he
mai
l
 UseofEl
ect
r
oni
cscanni
ngequi
pment
 UseofChangef
und
 UseofBankSy
st
em
 UseofCashShor
tandOv
erAccount
I
nt
er
nalCont
r
ol
sov
erCashPay
ment
s
 UseofPet
t
yCashFund
 UseofVoucherSy
st
em
 UseofBankSy
st
em
 TheNetMet
hodofr
ecor
di
ngPur
chasesasopposedt
oGr
ossmet
hod
A) CashRegi
st
er
:Cashr
ecei
vedovert
hecount
ershoul
dber
unguponacash
r
egi
st
ersot
hatt
hecust
omerwoul
dseet
heamountr
ecor
ded.Ont
heot
herhandt
he
cashi
err
ecor
dst
heamountsi
mul
t
aneousl
yonacashr
egi
st
ert
ape,whi
chi
snot
accessi
bl
e.Att
heendofbusi
nessoratt
heendoft
heday
,t
hecont
r
ol
l
eri
nwhose
hand t
hekeyf
ort
hecash r
egi
st
ert
apei
skeptunl
ockst
hecash r
egi
st
erand
compar
est
heact
ual
cashcountwi
t
ht
het
ape.
B) Pr
enumber
edSal
esTi
cket
s:Att
het
i
meofcont
r
oli
fnumber
(
s)i
s(
i
s)mi
ssi
ng,
i
tmi
ghtbe an i
ndi
cat
ort
hatsome sor
tofmi
sappr
opr
i
at
i
on i
s made and t
he
cor
r
ect
i
v
emeasur
eshoul
dbet
akeni
nt
hepr
opert
i
me.Anypagebei
tdef
ect
i
v
e,
v
oi
d
et
c.shoul
dbekepti
nt
hepad.
C) Twoormor
eempl
oy
eesshoul
dopent
hemai
lt
oget
her
:t
hi
scont
r
olt
echni
que
r
educest
hel
i
kel
i
hoodofasi
ngl
edi
shonestempl
oy
eest
eal
i
ngcashundet
ect
ed.They
pr
epar
easchedul
eshowi
ngt
henameoft
hecust
omer
ssendi
ngmoney
,
t
hepur
pose
f
orwhi
cht
hemoneywassentandt
heamountr
ecei
v
ed.Onecopyi
ssentt
ot
he
cashi
erwi
t
hcashandt
hesecondcopyi
ssentt
ot
heaccount
i
ngdepar
t
mentf
or
r
ecor
di
ngpur
poseandt
het
hi
r
dcopyi
sf
i
l
ed.Thecashi
erdeposi
t
st
hecashi
nt
he
bankassoonaspossi
bl
edai
l
y
,
i
fnotpossi
bl
et
henextdaymor
ni
ng.Theaccount
i
ng
depar
t
mentcr
edi
t
scust
omer
saccountandmakeot
herappr
opr
i
at
eent
r
i
es.Lat
er
anot
heri
ndi
v
i
dualcompar
est
heamountdeposi
t
edbyt
hecashi
erwi
t
ht
het
ot
al
amountcr
edi
t
edt
ov
ar
i
ousaccount
s.Thef
tander
r
or
swi
l
lber
ev
eal
edwhenev
er
t
heset
woamount
sar
enott
hesame.
D) El
ect
r
oni
cScanni
ngEqui
pment
:
Manyl
ar
gesupermar
ket
shav
eachi
ev
edf
ast
er
checkoutl
i
nesandst
r
ongeri
nt
er
nal
cont
r
ol
byt
hi
sequi
pmentt
or
eadandr
ecor
dt
he
pr
i
ceofal
l
gr
ocer
i
espassi
ngt
hecheckoutcount
er
s.
E) ChangeFund:I
ti
saf
undsetupt
omakechangessot
hatt
hecashi
err
ecei
v
es
nei
t
herabov
enorbel
owt
hesal
es.I
ti
susual
l
ykeptwi
t
ht
hedai
l
ysal
esr
ecei
pt
.Att
he
cl
ose ofa busi
ness day t
he amountofchange f
und i
sr
ekepti
n di
f
f
er
ent
denomi
nat
i
onsofcur
r
encyandcoi
ns.Thedai
l
ysal
esr
ecei
ptal
ongwi
t
hanycash
ov
er
agei
sbankedi
nt
act
,
dai
l
y
F) BankSy
st
em
 Al
lcashr
ecei
v
edmustbedeposi
t
edi
nt
hebankandal
lpay
ment
smustbemade
bychecksdr
awnont
hebankunl
esst
heamounti
ssmal
l
.
70
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
 I
nsomecases,abankmayr
equi
r
eabusi
nesst
omai
nt
ai
ni
nabankaccounta
mi
ni
mum cashbal
ance,
cal
l
edacompensat
i
ngbal
ance.
 Ther
equi
r
ementofcompensat
i
ngbal
ancei
si
mposedbyt
hebankasapar
tof
l
oanagr
eement
.
 I
nBanki
ngSy
st
em di
f
f
er
entf
or
msar
eusedbydeposi
t
or
s.Thef
or
msusedi
n
connect
i
onwi
t
habankaccount
sar
e:
1.Si
gnat
ur
eCar
d
Whenanaccounti
sopened,ani
dent
i
f
y
i
ngnumberi
sassi
gnedt
ot
heaccount
,and
eachper
sonaut
hor
i
zedt
osi
gnchecksdr
awnont
heaccountmustsi
gnasi
gnat
ur
e
car
d.Thecar
di
susedbyt
hebankt
odet
er
mi
net
heaut
hent
i
ci
t
yoft
hesi
gnat
ur
eon
t
hecheckspr
esent
edf
orpay
ment
.
2.Deposi
tTi
cket
/
Sl
i
p
Deposi
tSl
i
p/Ti
cketi
spr
epar
edi
ndupl
i
cat
e,i
nwhi
chcaset
hecopyi
sst
ampedor
i
ni
t
i
al
edbyt
hebank’
st
el
l
erandgi
v
ent
ot
hedeposi
t
orasar
ecei
pt
.
3.Check
Achecki
sawr
i
t
t
eni
nst
r
umentsi
gnedbyt
hedeposi
t
or
,or
der
i
ngt
hebankt
opaya
cer
t
ai
nsum ofmoneyt
ot
heor
derofadesi
gnat
edper
son.
Ther
ear
et
hr
eepar
t
i
esr
egar
di
ngcheck:
1.Dr
awer
:Theonewhosi
gnst
hecheck
2.Dr
awee:t
hebankonwhi
cht
hechecki
sdr
awn
3.Pay
ee:
-t
heonet
owhoseor
dert
hechecki
sdr
awn
 Thenameandt
headdr
essoft
hedeposi
t
orar
epr
i
nt
edoneachcheckandt
he
checki
susual
l
ynumber
edi
nsequencet
of
aci
l
i
t
at
et
hedeposi
t
or
’
si
nt
er
nal
cont
r
ol
 Busi
nessf
i
r
msmaypr
epar
eacopyofeachcheckdr
awnandt
heyusei
tasa
basi
sf
orr
ecodi
ngt
het
r
ansact
i
oni
nt
hecashpay
mentj
our
nal
s.
4.Recor
dsofChecksDr
awn:t
hi
scashpay
mentj
our
nal
i
nwhi
chal
l
cashpay
menti
n
checki
sr
ecor
dedupon.
5.Remi
t
t
anceAdv
i
ce:Checksi
ssuedt
oacr
edi
t
oronaccountar
eaccompani
edbya
not
i
f
i
cat
i
oncal
l
edar
emi
t
t
anceadv
i
ce.Thi
sf
or
m not
i
f
i
est
hecr
edi
t
ort
or
ecor
d
t
heappr
opr
i
at
ecr
edi
tandi
ssental
ongwi
t
hchecks.
6.St
opPay
mentOr
der
:
t
hef
or
mt
hatf
or
bi
dst
hebanknott
omakef
orchecks
pr
esent
edbecauseofl
ostchecksorcheat
edchecks.
7.
2) Bank Sy
st
em: Bank Account
; Bank St
at
ement and Bank
Reconci
l
i
at
i
onSt
at
ement
BankAccount
 Cashi
nbankaccounti
nt
hedeposi
t
or
’
sl
edgeri
st
her
eci
pr
ocaloft
heaccount
wi
t
ht
hedeposi
t
ori
nt
hebank’
sl
edger
.
 Cashi
nbanki
nt
hedeposi
t
or
’
sl
edgeri
sanassetwi
t
hadebi
tbal
ance,
andt
he
accountwi
t
ht
hedeposi
t
ori
nt
hebank’
sl
edgeri
sal
i
abi
l
i
t
ywi
t
hacr
edi
t
bal
ance.
BankSt
at
ement
Thebankst
at
ementshowst
hebegi
nni
ngbal
ance,
checksandot
hercr
edi
t
s(
addi
t
i
on
71
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
byt
hebanks)
,checksandot
herdebi
t
s(
deduct
i
onbyt
hebankf
r
om t
hedeposi
t
or
’
s
account
)andt
hebal
anceatt
heendoft
heper
i
od.Thebankcr
edi
t
st
hedeposi
t
or
’
s
accountf
or
:
 Deposi
t
sbycust
omer
 Recei
pt
sf
r
om not
esr
ecei
v
abl
el
ef
tf
orcol
l
ect
i
on
 Loanst
ot
hedeposi
t
or
Thebankdebi
t
st
hedeposi
t
or
’
saccountf
or
:
 Pai
dorcancel
l
edchecks
 Ser
v
i
ceChar
ges
 Deposi
t
edChecksbutr
et
ur
nedbecauseofi
nsuf
f
i
ci
entf
unds(
NSF)
BankReconci
l
i
at
i
onSt
at
ement
WhyBankReconci
l
i
at
i
onSt
at
ement
?Aswedi
scussed,t
her
ear
edoubl
er
ecor
dsf
or
t
hesamecash,oneofwhi
chi
smai
nt
ai
nedbyt
heBankandt
heot
heri
smai
nt
ai
ned
byt
heDeposi
t
or
.Thet
wor
ecor
dsshoul
dhav
eequalbal
ance,butt
heyar
enotl
i
kel
y
t
obeequal
onanyspeci
f
i
cdat
ebecauseof
:
1.Del
aybyei
t
herpar
t
yi
nr
ecor
di
ngt
r
ansact
i
ons
2.Er
r
or
sbyei
t
herpar
t
yi
nr
ecor
di
ngt
r
ansact
i
ons
Thus,
t
odet
er
mi
net
her
easonsf
oranydi
f
f
er
enceandt
ocor
r
ectanyer
r
or
st
hatmay
hav
ebeenmadebyt
hebankort
hedeposi
t
or
,t
hedeposi
t
orr
ecor
dsshoul
dbe
r
econci
l
ed wi
t
ht
he bank st
at
ementusi
ng bank r
econci
l
i
at
i
on st
at
ement
.Bank
Reconci
l
i
at
i
onSt
at
ementi
spr
epar
edonceeachmont
h.
El
ement
sofBankReconci
l
i
at
i
on
1.Del
ayi
nRecor
di
ngTr
ansact
i
onsbyt
heBank
A)Out
st
andi
ngDeposi
t
s:
At
i
mel
agbet
weent
hedat
eoft
hedeposi
tandt
hedat
ei
ti
sr
ecor
dedbyt
hebank.
E.
g.t
hedeposi
t
ormaymai
l
deposi
t
st
ot
hebankoruset
heni
ghtdeposi
t
or
y
.
B)Out
st
andi
ngChecks:
At
i
mel
agofonedayormor
ebet
weent
hedat
eachecki
swr
i
t
t
enandt
hedat
ei
ti
s
pr
esent
ed t
ot
he bankf
orpay
ment
.E.
g.on t
he busi
ness account
,checks ar
e
r
ecor
dedont
hedat
eonwhi
cht
heyar
ei
ssuedbycr
edi
t
i
ngcasht
hought
hebank
doesnoty
etpayi
t
.
Account
sPay
abl
e
xxx
Cashi
nBank
xxx
2.Del
ayi
nRecor
di
ngTr
ansact
i
onsbyt
heDeposi
t
or
s
A)BankDebi
tMemo
Thi
sdecr
easet
hecashi
nbankbal
anceoft
hedeposi
t
orandi
ncl
udesi
t
emssuchas:
 NotSuf
f
i
ci
entFund(
NSF)
 Ser
v
i
ceChar
ge
 CheckPr
i
nt
i
ng
Notsuf
f
i
ci
entFund(
NSF)
I
tr
ef
er
st
oanamountofmoneycol
l
ect
edf
or
m acust
omeri
nt
hef
or
m ofcheckand
72
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
deposi
t
edt
ot
hedeposi
t
or
sbankchecki
ngaccountwhi
l
et
hecust
omerdi
dnothav
e
adequat
ebal
ancet
ocov
ert
heamountwr
i
t
t
enont
hecheck.Exampl
e
Sal
esonAccount
:
Account
sRecei
v
abl
es–XCo.
xxx
Sal
es
xxx
MoneyCol
l
ect
edFor
m XCompanyi
nt
heFor
m ofCheck
Cash
xxx
Account
sRecei
v
abl
es–XCo
xxx
Unf
or
t
unat
el
y
,
noadequat
ebal
anceofcashi
ncust
omer
saccount
Account
sRecei
v
abl
es–XCo.
xxx
Cashi
nBank
xxx
B)BankCr
edi
tMemo
I
ti
ncr
easest
hecashi
nbankbal
anceoft
hedeposi
t
orsi
ncecashi
nbankhasacr
edi
t
bal
ancei
nbanksl
edger
.Exampl
e:
Pr
oceedsofnot
esr
ecei
v
abl
eandi
nt
er
est
3.Er
r
or
scommi
t
t
edei
t
herbyt
heBankort
heDeposi
t
or
Anyer
r
ort
hathasbeenmadebyt
hebankorbyt
hedeposi
t
oraf
f
ect
st
het
wor
ecor
ds.
Thus,
i
tshoul
dbeconsi
der
edi
nt
heBankReconci
l
i
at
i
onSt
at
ement
.
For
matofBankReconci
l
i
at
i
onSt
at
ement
NameofTheCompany
BankReconci
l
i
at
i
onSt
at
ement
Dat
e:Usual
l
yMont
hofReconci
l
i
at
i
on
Bal
anceasperBankSt
at
ement
xxx
Add:Deposi
ti
nTr
ansi
t
xxx
BankEr
r
or
s
xxx xxx
SubTot
al
xxx
Less:Out
st
andi
ngChecks
xxx
BankEr
r
or
s
xxx (
xxx)
Adj
ust
edCashBal
ance
xxx
Bal
anceperDeposi
t
orRecor
ds
xxx
Add:Not
esAndI
nt
er
estCol
l
ect
edByBank
xxx
Deposi
t
orEr
r
or
xxx xxx
SubTot
al
xxx
Less:NSF(
NotSuf
f
i
ci
entFund)
xxx
BankSer
v
i
ceChar
ge
xxx
Deposi
t
orEr
r
or
s
xxx (
xxx)
Adj
ust
edCashBal
ance
xxx
Exampl
e7.
1:t
her
econci
l
i
ngi
t
emsonFebr
uar
y28,
Year5,
bankr
econci
l
i
at
i
onofXYZ
Companywer
easf
ol
l
ows:
1.Bal
ancei
nt
hebankst
at
ement
,
Feb28,
y
ear5i
sBr16,
600
2.Bal
ancei
ncashl
edgeraccount
,
Feb28,
y
ear5i
sBr11,
060
3.Bankser
v
i
cechar
gesf
orFebr
uar
y
,
y
ear5i
sBr50
4.Deposi
t
i
nt
r
ansi
t
,
Feb28,
y
ear5i
nBr1,
200
5.Er
r
ori
nXYZCo.r
ecor
di
ngofCheckNo.654t
ov
endor
,
ABCcompany(
Br400
73
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
checkr
ecor
dedbyXYZasBr40)
6.I
nt
er
estonnot
er
ecei
v
abl
ecol
l
ect
edbybankf
orXYZCo.onFeb28,
y
ear5
wasBr300
7.NSFchecksf
orcust
omer
,
Bel
l
Company
,
char
gedbackbybankonFeb28,
y
ear5wasBr250.
8.Out
st
andi
ngchecks(
t
ot
al
)Feb28,
y
ear5i
sBr4,
100
9.Pr
i
nci
pal
ofnot
esr
ecei
v
abl
ecol
l
ect
edbybankf
orXYZCo.onFeb28y
ear5
wasBr3,
000
Requi
r
ed:Pr
epar
eBankReconci
l
i
at
i
onSt
at
ementf
orXYZCompanyandj
our
nal
i
ze
t
henecessar
yent
r
i
es
XYZCompany
BankReconci
l
i
at
i
on
Febr
uar
y28,
Year5
Bal
anceasperBankSt
at
ement
Add:
Deposi
ti
nTr
ansi
t
SubTot
al
Less:
Out
st
andi
ngChecks
Adj
ust
edCashBal
ance
Bal
ancepert
heDeposi
t
orRecor
d
Add:
Not
esCol
l
ect
edByBank
3,
00
0
300
Br
16,
600
1,
200
17,
800
(
4,
100)
13,
700
11,
060
I
nt
er
estonNot
eCol
l
ect
edByBank
3,
300
SubTot
al
14,
360
Less:
NSF(
NotSuf
f
i
ci
entFund)
250
BankSer
v
i
ceChar
ge
50
Er
r
ori
nRecor
di
ngCk.No.654(
400–40)
360
(
660)
Adj
ust
edCashBal
ance
13,
700
TheJour
nal
Ent
r
i
esBasedonTheBankReconci
l
i
at
i
oni
sasf
ol
l
ows:
Feb.28,
Year5: Cashi
nBank
3,
30
0
Not
esRecei
v
abl
e
3,
00
0
I
nt
er
estI
ncome
300
Feb.28,
Year5: Mi
scel
l
aneousAdmi
ni
st
r
at
i
onExpense
50
Account
sRecei
v
abl
e-Bel
l
Co
250
Account
sPay
abl
e–ABCCo.
360
Cashi
nBank
660
Not
e:Thedat
aneededf
oradj
ust
i
ngent
r
i
esar
epr
ov
i
dedundert
hedeposi
t
orsect
i
on
ofbankReconci
l
i
at
i
onSt
at
ement
.
7.
3)I
nt
er
nalCont
r
olov
erCashRecei
pt
sandPay
ment
s
74
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
I
nt
er
nalCont
r
ol
Pr
ocedur
es
Thef
ol
l
owi
ngf
act
or
sshoul
dbet
akeni
nt
oconsi
der
at
i
oni
ni
nt
er
nal
cont
r
ol
I
st
hepool
ofcashpr
ot
ect
edf
r
om t
hef
t
?
I
st
hepool
ofcashmanagedef
f
i
ci
ent
l
yt
oav
oi
dbot
hshor
t
ageandi
dl
ecash?
I
st
her
ecl
osecont
r
ol
ov
ercashdi
sbur
sement
sf
ort
het
r
uepay
eeandcor
r
ect
amount
?
I
nt
er
nalCont
r
ol
ov
erCashPay
ment
s
1.Al
l
di
sbur
sementshoul
dbemadebychecksorf
r
om pet
t
ycash.
2.Al
l
checksshoul
dbeser
i
al
l
ynumber
ed,
andaccessesf
orcheckshoul
dbe
l
i
mi
t
edt
oempl
oy
eeaut
hor
i
zedt
owr
i
t
echecks.
3.Theempl
oy
eewhoaut
hor
i
zedpay
mentofbi
l
l
shoul
dnotbeal
l
owedt
osi
gn
cheeks.
4.Appr
ov
eddocument
sshoul
dber
equi
r
edt
osuppor
t
sal
l
cheeki
ssues.
5.Theempl
oy
eeaut
hor
i
zi
ngcashdi
sbur
sement
sshoul
dcer
t
i
f
yt
hatpay
menti
s
f
orl
egi
t
i
mat
epur
poseandi
smadeoutf
ort
heexactamountandt
ot
hepr
oper
ai
m.
6.Thebankr
econci
l
i
at
i
onshoul
dbepr
epar
edmont
hl
y
.
7.Theempl
oy
eewhowi
l
l
si
gnedchecksshoul
dnothav
eaccesst
ocancel
ed
checksandshoul
dnotpr
epar
et
hebankr
econci
l
i
at
i
on.
8.Thev
ouchersy
st
em shoul
dbeused.
9.Thenetpr
i
cemet
hodofr
ecor
di
ngpur
chasesshoul
dbeused.
10.
Whenl
i
abi
l
i
t
i
esar
epai
dt
hedocument
ssuppor
t
i
ngi
tshoul
dbest
umped“
pai
d”
underquot
esandt
hedat
enumberofchecksi
ssuedshoul
dbei
ndi
cat
ed.
I
nt
er
nalCont
r
olPr
ocedur
esov
erCashRecei
pt
s
1.Pr
omptr
ecor
di
ngofal
l
sor
t
sofcashr
ecei
pt
s
2.Deposi
t
i
ngal
l
cashr
ecei
pt
si
nbankpr
ompt
l
y
3.Separ
at
i
onoft
her
esponsi
bi
l
i
t
yf
orhandl
i
ngcashr
ecei
pt
sandr
ecor
di
ngi
nt
he
account
i
ngsy
st
em.
CashShor
tandOv
er
Theamountofcashact
ual
l
yr
ecei
v
eddur
i
ngadayof
t
endoesnotagr
eewi
t
ht
he
r
ecor
dofcashr
ecei
pt
s.Exampl
e7.
2:Tot
alamountofcoi
nsandpapermoneyi
nt
he
cashr
egi
st
erdr
aweri
sBr4,
997.
60.Tot
alamountofsal
esshownont
hecash
r
egi
st
ert
apei
sBr5,
000.
 Sal
esasperCashRegi
st
erTapes 5,
000.
00
 Cashi
naDr
awer
4,
997.
60
 CashShor
t
age
2.
40
Jour
nalEnt
r
y
:
Cashi
nBank
4,
997.
6
0
CashShor
t&Ov
er
2.
40
Sal
es
5,
000.
0
0
Not
e:
I
ft
her
ei
sadebi
tbal
ancei
nt
hecashshor
t&ov
eraccountatt
heendoft
he
75
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
per
i
od,
i
ti
st
r
eat
edasex
penseandi
ncl
udedi
n“
Mi
scel
l
aneousExpenses”
.I
ft
her
ei
s
acr
edi
tbal
ance,
i
ti
sr
evenueandl
i
st
edi
n“
Ot
herI
ncomeSect
i
on”
.I
ft
hebal
ance
becomesl
ar
gert
hant
heexpect
edmi
norer
r
or
s,
managementshoul
dt
akecor
r
ect
i
v
e
measur
es.
CashChangeFund
Busi
ness t
hatr
ecei
v
es cash di
r
ect
l
yf
r
om cust
omer
s mustmai
nt
ai
naf
und of
cur
r
encyandcoi
nsi
nor
dert
omakechange.Exampl
e7.
3:Supposet
hechangef
und
amountt
obeBr500att
het
i
meofest
abl
i
shment
.Ther
ef
or
e,
t
her
ecor
dwi
l
l
be:
Cashonhand
50
0
Cashi
nBank
50
0
Assumeatt
heendofbusi
nessdayt
heamounti
nt
hecashi
erdr
awerandont
hecash
r
egi
st
ert
apei
s7,
680,
sot
heamountofsal
esshoul
dbe:
 Cashi
naDr
awer
7,
680.
00
 ChangeFund
(
500.
00)
 Sal
es
7,
180.
00
Cashi
nBank
7,
18
0
Sal
es
7,
18
0
Assumeatt
heendofbusi
nessdayt
heamounti
nt
hecashi
erdr
aweri
s7,
677.
40and
t
heamountont
hecashr
egi
st
ert
apei
s7,
180.Theamountofcashr
ecei
v
edf
r
om
sal
es=7,
677.
40–500.
00=Br7,
177.
40
 Sal
esasPert
heRegi
st
er
7,
180.
00
 Cashi
naDr
awer
(
7,
177.
40)
 CashShor
t
age
2.
60
Cashi
nBank
CashShor
t&Ov
er
Sal
es
7,
177.
4
0
2.
60
7,
180.
0
0
TheVoucherSy
st
em
Voucheri
saspeci
alf
or
m onwhi
chi
sr
ecor
dedr
el
ev
antdat
aaboutal
i
abi
l
i
t
yandt
he
det
ai
l
sofi
t
spay
ment
.I
ti
spr
epar
edbyaccount
i
ngdepar
t
mentont
hebasi
sof
i
nv
oi
ceoramemor
andum t
hatser
v
esaspr
oofofexpendi
t
ur
e.Thi
si
sdoneaf
t
ert
he
f
ol
l
owi
ngcompar
i
sons:
1.Compar
i
son oft
he i
nv
oi
ce wi
t
h a copyoft
he pur
chase or
dert
ov
er
i
f
y
quant
i
t
i
es,
pr
i
cesandt
er
ms.
2.Compar
i
sonoft
hei
nv
oi
cewi
t
ht
her
ecei
v
i
ngr
epor
tt
ov
er
i
f
yr
ecei
ptoft
he
i
t
emsbi
l
l
ed
3.Ver
i
f
i
cat
i
onoft
hear
i
t
hmet
i
caccur
acyoft
hei
nv
oi
ce.
76
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
TheVoucherSy
st
em andManagement
Thev
ouchersy
st
em notonl
ypr
ov
i
desef
f
ect
i
v
eaccount
i
ngcont
r
ol
sbutal
soai
ds
managementi
ndi
schar
gi
ngot
herr
esponsi
bi
l
i
t
i
es.I
tgi
v
esgr
eat
erassur
ancet
hatal
l
t
hepay
ment
sar
emadeonv
al
i
dl
i
abi
l
i
t
i
es.I
naddi
t
i
on,cur
r
enti
nf
or
mat
i
oni
sal
way
s
av
ai
l
abl
ef
orusei
ndet
er
mi
ni
ngf
ut
ur
ecashr
equi
r
ement
swhi
chr
esul
t
si
n:
 Ef
f
ect
i
v
ecashmanagement
 Mai
nt
ai
ni
ngaf
av
or
abl
ecr
edi
tst
andi
ngbyt
aki
ngcashdi
scountandot
her
i
nv
oi
cescanbepai
dont
hef
i
nal
dayofcr
edi
tper
i
od.
Pur
chaseDi
scount
s:NetMet
hodofRecor
di
ngPur
chases
I
npr
ev
i
ouschapt
er
s,pur
chaseofmer
chandi
sewer
er
ecor
dedatt
hei
nv
oi
cepr
i
ce(
gr
oss
amount
)andcashdi
scounti
st
akenatt
het
i
meofpay
mentbutt
hi
smet
hoddoesnot
measur
et
hecostoff
ai
l
i
ngt
ot
akedi
scount
s(
managementef
f
i
ci
ency
)
.I
fpur
chaseof
mer
chandi
sei
sr
ecor
dedatnetamount
,
i
tmeasur
est
hecostoff
ai
l
ur
et
ocashdi
scount
sand
gi
v
esmanagementanoppor
t
uni
t
yt
ot
aker
emedi
alact
i
ons.Exampl
e7.
4:OnNov1,ABC
Companypur
chasesmer
chandi
sewi
t
hani
nv
oi
cepr
i
ceofbi
r
r15000subj
ectt
ot
er
msof
2/
10,n/
30 FOB shi
ppi
ng poi
nt
.Requi
r
ed:
pass t
he j
our
nalent
r
i
es t
o be made byt
he
pur
chaseratat
i
meofpur
chaseandpay
mentundert
hegr
ossandnetpr
i
cemet
hodof
r
ecor
di
ngpur
chaseassumi
ng:
1.Pay
mentwasmadeonNov
.11(Wi
t
hi
nt
heDi
scountPer
i
od)
2.Pay
mentwasmadeonNov
.30(Out
si
det
heDi
scountPer
i
od)
Nov
.
1
Nov
.
11
Nov
.
30
I
)Att
heI
nv
oi
cePr
i
ce(
Gr
ossMet
hod)
A)Att
het
i
meofpur
chase
Pur
chases
15,
00
0
A/
Pay
abl
e
15,
00
0
B)Att
heTi
meofPay
ment
1)Wi
t
hi
nt
heDi
scountPer
i
od
A/
Pay
abl
e
15,
00
0
Cash
14,
70
0
Pur
.Di
scount
300
2)Outsi
det
heDi
scountPer
i
od
A/
Pay
abl
e
15,
00
0
Cash
15,
00
0
I
I
)AtNetAmount
A)Att
het
i
meofpur
chase
Pur
chases
14,
70
0
A/
Pay
abl
e
B)Att
heTi
meofPay
ment
1)Wi
t
hi
nt
heDi
scountPer
i
od
A/
Pay
abl
e
14,
70
0
Cash
14,
70
0
14,
70
0
2)Outsi
det
heDi
scountPer
i
od
A/
Pay
abl
e
15,
00
0
Di
scountLost
300
Cash
15,
00
0
Not
e:Anydi
scount
snott
akenar
et
henr
ecor
dedi
nanexpenseaccountcal
l
ed
Di
scountl
ost
.
Pet
t
yCash
I
ti
saf
undofmoneyt
hati
ssetf
ort
hepur
poseofmaki
ngpay
ment
sf
orsmal
lexpendi
t
ur
e
occur
r
i
ngv
er
yf
r
equent
l
yandt
hatdonotj
ust
i
f
yt
heuseofchecks,
si
ncecheckshaspr
i
nt
i
ng
cost
sanddel
ayf
orappr
ov
alofchecks.I
nest
abl
i
shi
ngapet
t
ycashf
und,t
hef
i
r
stst
epi
st
o
77
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
est
i
mat
et
heamountofcashneededf
ordi
sbur
sement
sofr
el
at
i
v
el
ysmal
lamount
sdur
i
nga
cer
t
ai
nper
i
odsuchasaweekoramont
h.
Pet
t
yCash
Cashi
nBank
 I
fv
ouchersy
st
em i
sused:
Pet
t
yCash
Account
sPay
abl
e
Account
sPay
abl
e
xxxx
x
xxxx
x
xxxx
x
xxxxx
xxxxx
Cashi
nBank
xxxxx
Thef
undi
sr
epl
eni
shedwhent
heamountofmoneyi
nt
hepet
t
ycashf
undi
sr
educed
t
ot
hepr
edet
er
mi
nedmi
ni
mum amountandatt
heendofanaccount
i
ngper
i
od.
Exampl
e7.
5:
OnDecember1,
1993,
ABCCo.est
abl
i
shedapet
t
ycashf
undofBr450.
Pet
t
yCash
450.
0
0
Cashi
nBank
450.
0
0
December19,
1993,
becauset
hemoneyi
nt
hef
undi
sr
educedt
oBr93.
60,
t
hef
undi
s
r
epl
eni
shed.Thedi
sbur
sement
sar
easf
ol
l
ows.
 Del
i
v
er
yExpense
112.
50
 Of
f
i
ceSuppl
i
es
62.
28
 Ut
i
l
i
t
yExpense
180.
00
 Tot
al
354.
78
Comput
eCashShor
t
ageandOv
er
:
 Pet
t
yCashBal
ance
 Tot
al
Expendi
t
ur
e
 Expect
edCasht
obeonHand
 Less:
Act
ual
cashonhand
 CashShor
t
age
Jour
nalEnt
r
y
:
Del
i
v
er
yExpense
Of
f
i
ceSuppl
i
es
Ut
i
l
i
t
yExpense
CashShor
t&Ov
er
Cashi
nBank
450.
00
354.
78
95.
22
(
93.
60)
1.
62
112.
5
0
62.
00
180.
0
0
1.
62
356.
4
0
Dec31,
1993,
t
hecashi
nf
undi
sBr240.
75.Thef
undi
sr
epl
eni
shedt
oi
ncl
udepet
t
ycash
pay
mentof:
 Del
i
v
er
yExpense
 Of
f
i
ceSuppl
i
es
 Tot
al
85.
50
123.
75
209.
25
78
Chapt
erSev
en:
Account
i
ngf
orCashandTempor
ar
yI
nv
est
ment
s
Comput
eCashShor
tandOv
er
 Pet
t
yCashFund
 Less:
Tot
al
Expendi
t
ur
e
 Expect
edCash
 Act
ual
CashonHand
 CashShor
tandOv
er
Jour
nal
Ent
r
yi
sasf
ol
l
ows:
Del
i
v
er
yExpense
Of
f
i
ceSuppl
i
es
Cashi
nBank
450.
00
209.
25
240.
75
240.
75
_
_
_
0_
_
85.
50
123.
7
5
209.
2
5
Januar
y1,
managementdeci
dest
hepet
t
ycashf
undmustbei
ncr
easedt
oBr675.
00
 NewPet
t
yCash
675.
00
 Al
r
eadyEst
abl
i
shed
450.
00
 I
ncr
ement
al
Pet
t
yCash
225.
00
Thent
hej
our
nal
ent
r
yi
sdebi
t
i
ngPet
t
yCashandCr
edi
t
i
ngCashi
nBankbyBr225.
00.
I
fpet
t
ycashi
si
ncr
easedbyBr675,
t
hej
our
nalent
r
ywi
l
lbedebi
t
i
ngPet
t
yCashbyBr
675.
00andCr
edi
t
i
ngCashi
nBankbyt
hesameamount
7.
4)Tempor
ar
yI
nv
est
ment
s
Abusi
nessmayhav
eal
ar
geamountofcashonhandt
hati
snotneededi
mmedi
at
el
y
,
i
nsuchacause;
t
hebusi
nessmayputal
lorpar
tofi
ti
nt
oi
ncomey
i
el
di
ngi
nv
est
ment
suchas:
 Cer
t
i
f
i
cat
esofdeposi
t
or
s
 Moneymar
ket
s
 Tr
easur
ybi
l
l
s
I
nmanycases,t
hei
dl
ecashi
si
nv
est
edi
nsecur
i
t
i
est
hatcanbequi
ckl
ysol
dwhen
cashi
sneeded.Suchsecur
i
t
i
esar
eknownasTempor
ar
yi
nv
est
ment
sormar
ket
abl
e
secur
i
t
i
es.Tempor
ar
yi
nv
est
ment
si
nsecur
i
t
i
esi
ncl
udest
ocksandbonds.Shor
tt
er
m
i
nv
est
menti
saccount
edf
orunderl
owerofcostormar
ketonaggr
egat
ebasi
s.
Exampl
e7.
6:
Tempor
ar
y
Unr
eal
i
zed
I
nv
est
ment
Cost
Mar
ket
Gai
n
(
Loss)
Secur
i
t
yA
30,
500.
00 28,
750.
00 1,
750.
00
Secur
i
t
yB
19,
200.
00 22,
100.
00 (
2,
900.
00
)
Secur
i
t
yC
21,
600.
00 23,
900.
00 (
2,
300.
00
)
Secur
i
t
yD
70,
300.
00 65,
250.
00 5,
050.
00
Tot
al
141,
600.
00 140,
000.
00 1,
600.
00
Mar
ket
abl
eequi
t
ysecur
i
t
i
eswoul
dber
epor
t
edi
nt
hecur
r
entassetsect
i
onoft
he
bal
ancesheetatmar
ketv
al
ueof140,
000.Nor
ecogni
t
i
onofgai
n.
79
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
Chapt
erEi
ght
Account
i
ngf
orRecei
v
abl
es
Recei
v
abl
esar
eamount
st
hatar
eexpect
edt
obecol
l
ect
edf
r
om di
f
f
er
entent
i
t
i
es
suchascust
omer
sandor
gani
z
at
i
ons
8.
1) Cl
assi
f
i
cat
i
onofRecei
v
abl
es
Basedt
hesour
ce,
r
ecei
v
abl
esar
ecl
assi
f
i
edast
r
adeandnont
r
ader
ecei
v
abl
es:
1)Tr
adeRecei
v
abl
es–r
ecei
v
abl
est
hator
i
gi
nat
ef
r
om t
hemaj
oroper
at
i
onoft
he
busi
nesssuchassal
eofgoodsorser
v
i
cesonaccount
2)Nont
r
adeRecei
v
abl
es-r
ecei
v
abl
est
hat or
i
gi
nat
ef
r
om mi
scel
l
aneoussour
ce
r
at
hert
hant
hemaj
oroper
at
i
onoft
hebusi
nessandi
ncl
udesl
endi
ngmoneyt
o:
 Out
si
der
s
 Empl
oy
eesasadv
ance
 Of
f
i
cer
s
Basedont
henat
ur
e,
r
ecei
v
abl
esar
ecl
assi
f
i
edi
nt
ot
woasAccount
sRecei
v
abl
eand
Not
esRecei
v
abl
es:
1)Account
sRecei
v
abl
e:ar
er
ecei
v
abl
esbasedonnonwr
i
t
t
enoror
alpr
omi
sest
o
payf
orgoodsandser
v
i
cesoncr
edi
t
.Account
sr
ecei
v
abl
e:
 Ar
eopenaccount
s
 Ar
enor
mal
l
ycol
l
ect
i
bl
ewi
t
hi
n60day
s
 Ar
enoni
nt
er
estbear
i
ng
2)Not
esRecei
v
abl
e:i
sr
ecei
v
abl
esbasedwr
i
t
t
enpr
omi
sest
opaycer
t
ai
nsum of
moneyonaspeci
f
i
edf
ut
ur
edat
et
ot
hebear
eroft
henot
e.Pr
omi
ssor
yNot
e
(
Not
esRecei
v
abl
es)
:
 Not
ei
sawr
i
t
t
enpr
omi
set
opayasum ofmoneyondemandoratadef
i
ni
t
e
t
i
me.
 Ar
eusual
l
yusedf
orcr
edi
tper
i
odsofmor
et
han60day
sandf
ort
r
ansact
i
on
ofr
el
at
i
v
el
yl
ar
geamount
s.
 Mayal
sobeusedi
nset
t
l
ementofanopenaccount(
Accountr
ecei
v
abl
es)
andi
nbor
r
owi
ngorl
endi
ngmoney
,
si
ncenot
ei
sl
egal
andf
or
mal
i
nst
r
ument
.
Thi
scl
assi
f
i
cat
i
oni
snotmut
ualexcl
usi
v
er
at
heri
ti
sanov
er
l
appi
ngcl
assi
f
i
cat
i
on
becausear
ecei
v
abl
ecanbebot
ht
r
adeandaccount
sr
ecei
v
abl
eort
r
adeandnot
es
r
ecei
v
abl
es.Al
lr
ecei
v
abl
est
hatar
eexpect
edt
ober
eal
i
zedi
ncashwi
t
hi
nay
earar
e
pr
esent
edi
nt
hecur
r
entasset
ssect
i
onoft
hebal
ancesheet
.Thoser
ecei
v
abl
est
hat
i
snotcur
r
ent
l
ycol
l
ect
i
bl
esuchasl
ongt
er
ml
oansshoul
dbepr
esent
edundert
he
capt
i
on“
I
nv
est
ment
s”bel
owt
hecur
r
entassetsect
i
on.
Char
act
er
i
st
i
csofNot
esRecei
v
abl
es:
1.Not
esr
ecei
v
abl
ei
smor
el
i
qui
dt
hanAccount
sRecei
v
abl
es
2.Not
esr
ecei
v
abl
ecanbemadei
nt
er
estbear
i
ngornoni
nt
er
estbear
i
ng.Anot
et
hat
pr
ov
i
desf
ort
hepay
mentofi
nt
er
estf
ort
heper
i
odbet
weent
hei
ssuancedat
eand
t
heduedat
ei
scal
l
edani
nt
er
estbear
i
ngnot
e.I
ft
henot
emakesnopr
ov
i
si
onf
or
i
nt
er
est
,
i
ti
ssai
dt
obenoni
nt
er
estbear
i
ngnot
e.
80
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
3.Pr
omi
ssor
ynot
eshav
east
r
ongerl
egal
st
at
ust
hanopenaccount
s.
4.Ther
ear
et
wopar
t
i
esr
egar
di
ngnot
es:
(
1)Pay
ee–t
hepar
t
yt
owhi
cht
heor
der
ed
not
ei
spay
abl
e,
and(
2)TheMaker–t
hepar
t
ywhi
chi
smaki
ngt
hepr
omi
se.
Exampl
e8.
1:OnMay1,2005GGCopur
chasedmer
chandi
sef
orBr5,
000f
r
om XYZ
Cogi
v
i
ngawr
i
t
t
enpr
omi
set
opayaf
t
er90day
s.Det
er
mi
net
hePay
eeandt
hemaker
oft
henot
e
Pay
ee:
XYZCompany
Maker
:
GGCompany
8.
2) Det
er
mi
nat
i
onofI
nt
er
est
,
DueDat
e,
andMat
ur
i
t
yVal
ue
1.Det
er
mi
nat
i
onofI
nt
er
est
I
nt
er
est=Pr
i
nci
pal@ Rat
e@ Ti
me
Exampl
e8.
2:Comput
et
hei
nt
er
estonBr10,
000,
12%,
90day
spr
omi
ssor
ynot
e.
 I
nt
er
est=10,
000@ 12%@ 90/360
 I
nt
er
est=Bi
r
r300
2.Det
er
mi
nat
i
onofDueDat
e
DueDat
e(
Mat
ur
i
t
yDat
e)
:i
st
hedat
eonwhi
cht
henot
ei
st
obepai
d.Thet
er
m oft
he
not
emaybest
at
edi
nt
er
msofspeci
f
i
ednumberofday
sormont
hs.Whent
het
er
m
ofanot
ei
sst
at
edi
nday
s,t
heduedat
ei
st
hespeci
f
i
ednumberofday
saf
t
eri
t
s
i
ssuance.Whent
het
er
m ofanot
ei
sst
at
edasacer
t
ai
nnumberofmont
hsaf
t
ert
he
i
ssuancedat
e,t
heduedat
ei
sdet
er
mi
nedbycount
i
ngt
henumberofmont
hsf
r
om
t
hei
ssuancedat
e.
Exampl
e8.
3:XCompanyi
ssued90day
s,
12%,
Br10,
000not
e,
dat
edOct
ober14t
oY
Cor
por
at
i
oni
nset
t
l
ementofanopenaccount
.Det
er
mi
net
heduedat
eoft
henot
e.
Sol
ut
i
on:
Ter
ms
of
t
he
not
e
90Day
s
Day
sr
emai
ni
ngi
nOct
ober(
3114)
Day
si
nNov
ember
Day
si
nDecember
Tot
al
DueDat
e,
Januar
y
17Day
s
30Day
s
31Day
s
78Day
s
12
Exampl
e 8.
4:W Companyi
ssued a 60day
,12% Br
1000,dat
ed May10,t
oL
Cor
por
at
i
on.Det
er
mi
net
heduedat
eoft
henot
e?
Sol
ut
i
on:
Ter
ms
of
t
he
not
e
60Day
s
Day
sr
emai
ni
ngi
nMay(
3110)
21Day
s
Day
si
nJune
30Day
s
Tot
al
51Day
s
DueDat
e,
Jul
y
9
Exampl
e8.
5:TheMat
ur
i
t
yDat
eofa3mont
hsnot
edat
edJune5woul
dbeon
Sept
ember5.Ont
hosecasesi
nwhi
cht
her
ei
snodat
ei
nt
hemont
hofmat
ur
i
t
yt
hat
81
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
cor
r
espondst
ot
hei
ssuancedat
e,
t
heduedat
ewi
l
l
bet
hel
astdayoft
hatmont
h.
3.Det
er
mi
nat
i
onofMat
ur
i
t
yVal
ue
 Theamountt
hati
sdueatt
hemat
ur
i
t
yorduedat
ei
scal
l
edt
hemat
ur
i
t
yv
al
ue
 Themat
ur
i
t
yv
al
ueofanoni
nt
er
estbear
i
ngnot
ei
st
hef
aceamount
.
 Themat
ur
i
t
yv
al
ueofi
nt
er
est
bear
i
ngnot
ei
st
hesum oft
hef
aceamountand
t
hei
nt
er
est
.
Exampl
e 8.
6:W Co.i
ssueda60day
,Bi
r
r10,
000,12%i
nt
er
estbear
i
ngnot
e,dat
ed
may19t
oLCor
por
at
i
ononaccount
.Det
er
mi
net
heMat
ur
i
t
yVal
ueoft
heNot
e.
Sol
ut
i
on:
 FaceVal
ue
Br10,
000.
00
 Add:
I
nt
er
est(
10,
000@ 12%@ 60/
360)
200.
00
 Mat
ur
i
t
yVal
ue
Br10,
200.
00
8.
3) Account
i
ngForNot
esRecei
v
abl
e
I
ft
heaccount
sofacust
omerbecomedel
i
nquent
,
t
hecr
edi
t
ormayi
nsi
stt
hatt
he
accountbeconv
er
t
edi
nt
oanot
e.I
ft
hedebt
ori
sgi
v
enmor
et
i
meandt
hecr
edi
t
or
needsmor
ef
unds,
t
henot
emaybeendor
sedandt
r
ansf
er
r
edt
oabankorot
her
f
i
nanci
al
agency
.
Exampl
e8.
7:ABCCopur
chasedmer
chandi
sef
orBr
30,000onNov11,1995wi
t
h
t
er
ms2/
10,n/
30f
r
om XYZCor
por
at
i
on.Howev
er
,asABCCompanydi
dn’
tpayi
t
s
accountt
oi
t
scr
edi
t
or
sont
heagr
eeddat
e(
Dec.
11,1995)andXYZCor
por
at
i
on
i
nsi
st
ed t
he debt
ort
o gi
v
e a not
ei
nt
he pl
ace oft
he open account(
A/
R)
.
Consequent
l
y
,ABCCompanysi
gnsaBr30,
000,12%,90day
si
nt
er
estbear
i
ngnot
e
dat
edDecember
11,1995.Requi
r
ed:Recor
dt
heappr
opr
i
at
ej
our
nalent
r
yt
obemade
byXYZCor
por
at
i
on(
sel
l
er
)
:
1.OnDecember
11,
1995whent
henot
ewasr
ecei
v
ed
2.OnDecember31,
1995,
endoft
hef
i
scal
y
ear
3.Atmat
ur
i
t
ydat
eoft
henot
e
A.Assumi
ngr
ev
er
si
ngent
r
ywasmadeonJan1,
1996
B.Assumi
ngr
ev
er
si
ngent
r
ywasnotmadeonJan1,
1996
Sol
ut
i
on:
1.Toconv
er
tanopenaccountt
oanot
e
Dec.11,
1995: Not
esRecei
v
abl
e
10,
000.
0
0
Account
sRecei
v
abl
e
10,
000.
0
0
2.Tor
ecor
daccr
uedi
nt
er
estf
or20day
s
 Fr
om Dec.11t
oDec.31=20day
s
 Accr
uedI
nt
er
est=30,
000@ 12%@ (
20/360)=Br200
Dec.31,
1995: I
nt
er
estRecei
v
abl
e
200.
00
I
nt
er
estI
ncome
200.
00
3.OnMat
ur
i
t
yDat
e
A.Assumi
ngRev
er
si
ngEnt
r
ywasmade
Ter
ms
of
t
he
not
e
90Day
s
82
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
Day
sRemai
ni
ngDecember(
3111)
Day
si
nJanuar
y
Day
si
nFebr
uar
y
Tot
al
DueDat
e:
Mar
ch
Mar
ch10,
1996:
Cash
Not
esRecei
v
abl
e
I
nt
er
estI
ncome
B.Assumi
ngRev
er
si
ngEnt
r
ywasnotmade
Cash
Not
esRecei
v
abl
e
I
nt
er
estRecei
v
abl
e
I
nt
er
estI
ncome
20Day
s
31Day
s
29Day
s
80Day
s
10
30,
900.
0
0
30,
900.
0
0
30,
000.
0
0
900.
00
30,
000.
0
0
700.
00
900.
00
Di
scount
i
ngofNot
esRecei
v
abl
e
Di
scount
i
ngofnot
esr
ecei
v
abl
er
ef
er
st
ot
heactofsel
l
i
nganot
er
ecei
v
abl
ebya
companyt
of
i
nanci
ali
nst
i
t
ut
i
onsbef
or
et
hemat
ur
i
t
ydat
eoft
henot
eandgetnet
cashpr
oceedsi
nr
et
ur
n.Whenacompanyi
si
nneedofcash,
i
tmayt
r
ansf
eri
t
snot
es
r
ecei
v
abl
et
oabankbyendor
sement
.
 Thedi
scountchar
gedbyt
hebanki
scomput
edont
hemat
ur
i
t
yv
al
ueoft
henot
e
f
ort
heper
i
odoft
i
met
hebankhol
dst
henot
e.I
.
e.t
het
i
met
hatwi
l
l
pass
bet
weent
hedat
eoft
het
r
ansf
erandt
heduedat
e
 Theamountoft
hepr
oceedspai
dt
ot
heendor
seri
st
heexcessoft
hemat
ur
i
t
y
v
al
ueov
ert
hedi
scount
 Ther
ear
et
hr
eepar
t
i
es:
(
1)Maker
:
t
heonewhomakesanot
e,
(
2)Endor
ser
:
t
he
onewhot
akest
hepr
oceedsand(
3)Pay
ee:
t
hebankorot
herFi
nanci
al
I
nst
i
t
ut
i
onaccept
i
ngt
heNot
e.
Exampl
e8.
8:XYZCor
por
at
i
ondi
scount
edt
he90day
s,
12%,
Bi
r
r30,
000not
es
r
ecei
v
abl
edat
edDecember11,
1995onDecember21att
her
at
eof14%ati
t
sl
ocal
bank.Requi
r
ed:Det
er
mi
net
hepr
oceedsandr
ecor
dt
hej
our
nal
ent
r
i
esatt
het
i
meof
di
scount
i
ngt
henot
e.
NetCashPr
oceeds =Mat
ur
i
t
yVal
ue–BankDi
scount
Amount
Wher
eMat
ur
i
t
yVal
ue=Pr
i
nci
pal
+I
nt
er
est
BankDi
scount=Mat
ur
i
t
yVal
ue@ BankDi
scountRat
e@ Ti
me
Sol
ut
i
on:TheDi
scountPer
i
od:
(
Dec.21–Feb.9)=50day
s
FaceVal
ueofNot
eDat
edDec.11
10,
000.
0
83
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
I
nt
er
est60,
000@ 12%@ 60/
360
Mat
ur
i
t
yVal
ue
BankDi
scount=10,
200@14%@ 50/
360
NetCashPr
oceeds
Jour
nalEnt
r
y
:
Dec.21,
1991:
Cash
Not
esRecei
v
abl
e
I
nt
er
estI
ncome
0
200.
00
10,
200.
0
0
198.
33
10,
001.
6
7
10,
001.
6
7
10,
000.
0
0
1.
67
Exampl
e 8.
9:Assume t
he abov
e not
ei
s di
scount
ed at15% i
nst
ead of14%.
Det
er
mi
net
henetcashpr
oceedsandr
ecor
dt
hej
our
nal
ent
r
y
.
Sol
ut
i
on:
FaceVal
ueofNot
eDat
edDec.11
10,
000.
0
0
I
nt
er
est60,
000@ 12%@ 60/
360
200.
00
Mat
ur
i
t
yVal
ue
10,
200.
0
0
BankDi
scount
=10,
200@14%@ 50/
360
212.
50
NetCashPr
oceeds
9,
987.
50
Jour
nal
Ent
r
y
:
Dec.21,
Cash
9,
987.
5
1991:
0
I
nt
er
estExpense
12.
50
Not
esRecei
v
abl
e
10,
000.
0
0
Not
e:
I
ft
heCashPr
oceeds>FaceVal
ue,
I
nt
er
estI
ncomewi
l
l
ber
ecogni
zed.I
fCash
Pr
oceeds<FaceVal
ue,
I
nt
er
estExpensewi
l
l
ber
ecogni
zed.
Di
shonor
edNot
esRecei
v
abl
e
I
ft
hemakerofanot
ef
ai
l
st
opayt
hedebtont
heduedat
e,t
henot
ei
ssai
dt
obe
di
shonor
ed.Adi
shonor
ednot
er
ecei
v
abl
ei
snol
ongernegot
i
abl
e,
andf
ort
hatr
eason
t
hehol
derusual
l
yt
r
ansf
er
st
hecl
ai
m,i
ncl
udi
nganyi
nt
er
estdue.
Att
hi
st
i
met
he
bankwi
l
l
gett
hewhol
eamountf
r
om endor
ser
.Di
shonor
ednot
escanbe:
1.Bef
or
eDi
scount
i
ngt
heNot
e
Exampl
e8.
10:I
ft
heXYZ Companyr
ecei
v
eda10,
000,60day
s,12% not
e and
r
ecor
dedonDecember11,
1995hadbeendi
shonor
edatmat
ur
i
t
y
,
t
heent
r
yt
ochar
ge
t
henot
e,
i
ncl
udi
ngt
hei
nt
er
estbackt
ot
hecust
omer
’
s(
ABCcompany
)accountwoul
d
84
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
hav
ebeenasf
ol
l
ows:
Feb.9,
1995: Account
sRecei
v
abl
e–ABCCo. 10,
200.
0
0
Not
esRecei
v
abl
e
10,
000.
0
0
I
nt
er
estI
ncome
200.
00
2.Af
t
erDi
scount
i
ngTheNot
e:
Exampl
e8.
11:Br10,
000,60day
s,12%not
esdi
scount
edonDecember21,hadbeen
di
shonor
edbyt
hemakeronmat
ur
i
t
y.
Thenecessar
yj
our
nalent
r
yi
nt
hebookof
endor
ser(
XYZCompany
)i
s:
Feb.9,
1995: Account
sRecei
v
abl
e–ABCCo. 10,
200.
0
0
Cash
10,
200.
0
0
Assumet
hebankchar
gesendor
serapr
ot
estf
eeof10bi
r
randt
heendor
ser
,whoi
n
t
ur
nchar
gesi
tt
ot
hemakeroft
henot
ei
nexampl
e2,
t
hej
our
nalent
r
yi
nt
hebookof
endor
ser(
XYZCompany
)i
s:
Feb.9,
1995: Account
sRecei
v
abl
e–ABCCo. 10,
210.
0
0
Cash
10,
210.
0
0
8.
4) Ac
count
i
ngf
orUncol
l
ect
i
bl
eAccount
s
Whenmer
chandi
seorser
v
i
cesar
esol
dwi
t
houtt
hei
mmedi
at
er
ecei
ptofcash,
apar
t
oft
hecl
ai
msagai
nstcust
omer
si
spr
ov
est
obeuncol
l
ect
i
bl
e.Theoper
at
i
ngexpense
i
ncur
r
edbecauseoft
hef
ai
l
ur
et
ocol
l
ectr
ecei
v
abl
ei
scal
l
edanexpenseoral
oss
f
r
om uncol
l
ect
i
bl
e account
s,doubt
f
ulaccount
s,orbad debt
s.Ther
e ar
et
wo
met
hods:(
1)TheAl
l
owanceMet
hods/
Reser
v
eMet
hod and (
2)Di
r
ectWr
i
t
eof
f
Met
hods/
Di
r
ectChar
geof
fMet
hod
8.
4.
1)
Al
l
owanceMet
hod:
Thi
smet
hodmakesapr
ov
i
si
onf
orpossi
bl
ef
ut
ur
euncol
l
ect
i
bl
eamounti
nadv
ance.
Thi
s pr
ocedur
er
equi
r
es y
ou t
o make an est
i
mat
e aboutpossi
bl
e uncol
l
ect
i
bl
e
amount
sandr
ecogni
zet
hi
si
nt
her
ecor
dasanadj
ust
mentt
oaccountr
ecei
v
abl
e
accountatt
heendofev
er
yaccount
i
ngper
i
od.Thej
our
nalent
r
yf
ort
heest
i
mat
ed
amounti
s:
Uncol
l
ect
i
bl
eAccountExpense.
xxxxx
Al
l
owancef
orDoubt
f
ul
Account
s
xxxx
x
Not
e:Uncol
l
ect
i
bl
eaccount
sexpensei
sgener
al
l
yr
epor
t
edont
hei
ncomest
at
ement
asanadmi
ni
st
r
at
i
v
eexpense.Al
l
owancef
ordoubt
f
ulaccount
si
st
heamountt
obe
deduct
edf
r
om A/
Rt
odet
er
mi
nenetr
eal
i
zabl
ev
al
ue.
Par
t
i
alBal
anceSheetPr
esent
at
i
on
Cur
r
entAsset
:
Cash
xxxxx
Account
sRecei
v
abl
e
xxxxx
85
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
Less:
Al
l
owancef
orDoubt
f
ul
Account
s
xxxxx xxxxx
Wr
i
t
eof
ft
ot
heAl
l
owanceAccount
Dur
i
ngt
hey
ear
,asmor
eaccount
sorpor
t
i
onsofaccount
sar
edet
er
mi
nedt
obe
uncol
l
ect
i
bl
e,i
ti
swr
i
t
t
enof
fagai
nstal
l
owancef
ordoubt
f
ulaccount
s.Whenan
accounti
sbel
i
ev
ed t
o beuncol
l
ect
i
bl
e,i
ti
swr
i
t
t
en of
fagai
nstt
heal
l
owances
accountasf
ol
l
ows
Al
l
owancef
orDoubt
f
ul
Account
s.
xxxxx
Account
sRecei
v
abl
e
xxxx
x
 Thet
ot
al
amountwr
i
t
t
enof
fagai
nstt
heal
l
owanceaccountdur
i
ngt
heper
i
odwi
l
l
r
ar
el
ybeequal
t
ot
heamounti
nt
heaccountatt
hebegi
nni
ngoft
heper
i
od
 Theal
l
owanceaccountwi
l
l
hav
eacr
edi
tbal
anceatt
heendoft
heper
i
odi
ft
he
wr
i
t
eof
f
sdur
i
ngt
heper
i
odamountt
ol
esst
hant
hebegi
nni
ngbal
ance
 I
twi
l
l
hav
eadebi
tbal
ancei
ft
hewr
i
t
et
hewr
i
t
eof
f
sexceedt
hebegi
nni
ngbal
ance
 Af
t
ert
hey
ear
endadj
ust
i
ngent
r
yi
sr
ecor
dedt
heal
l
owanceaccountwi
l
l
hav
ea
cr
edi
tbal
ance
Rei
nst
at
ementofWr
i
t
eof
fEnt
r
y
Anaccountr
ecei
v
abl
et
hathasbeenwr
i
t
t
enof
fagai
nstt
heal
l
owanceaccountmay
l
at
erbecol
l
ect
ed.I
nsuchcases,
t
heaccountshoul
dber
ei
nst
at
edas:
Account
sRecei
v
abl
e
xxxxx
Al
l
owancef
orDoubt
f
ul
Account
s.
xxxx
x
Exampl
e8.
12:ABCCompany
’
saccountr
ecei
v
abl
ehasabal
anceofBr25,
000att
he
endoft
heper
i
od.Basedonst
udy
,i
ti
sest
i
mat
edt
hatat
ot
alofBr2,
000wi
l
lbe
uncol
l
ect
i
bl
e.TheAdj
ust
i
ngEnt
r
yonDecember31
Uncol
l
ect
i
bl
eAccountExpense.
2,
000.
0
0
Al
l
owancef
orDoubt
f
ul
Account
s
2,
000.
0
0
AccountRecei
v
abl
e
25,
000.
00
Less:
Al
l
owancef
ordoubt
f
ul
account
2000.
00
NetReal
i
zabl
eVal
ueofaccountr
ecei
v
abl
e
23,
000.
00
Assumi
ngBr500oft
her
ecei
v
abl
esi
sbel
i
ev
edt
obeuncol
l
ect
i
bl
eandi
swr
i
t
t
enof
f
onJanuar
y10,
t
heent
r
ywoul
dasf
ol
l
ows:
Al
l
owancef
orDoubt
f
ul
Account
.
500.
0
0
Account
sRecei
v
abl
es
500.
0
0
Accountr
ecei
v
abl
e
24,
500.
00
Less:
Al
l
owancef
orDoubt
f
ul
Account
1,
500.
00
NetReal
i
zabl
eVal
ueofAccountRecei
v
abl
e
23,
000.
00
Not
e:t
her
ei
snochangei
nnetr
eal
i
zabl
ev
al
ueofaccountr
ecei
v
abl
e.
Fur
t
herassumet
hatt
heBr500wr
i
t
t
enof
fi
nt
hepr
ecedi
ngj
our
nalent
r
yi
sl
at
er
86
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
col
l
ect
ed.Theent
r
yt
or
ei
nst
at
et
heaccountwoul
dbeasf
ol
l
ows:
Account
sRecei
v
abl
es
500.
0
0
Al
l
owancef
orDoubt
f
ul
Account
.
500.
0
0
Est
i
mat
i
ngUncol
l
ect
i
bl
e
Theest
i
mat
eofuncol
l
ect
i
bl
eatt
heend oft
hef
i
scalper
i
od i
sbased onpast
exper
i
enceandf
or
ecast
soff
ut
ur
ebusi
nessact
i
v
i
t
y
.Thet
womet
hodst
oest
i
mat
e
uncol
l
ect
i
bl
ear
e:
1.Est
i
mat
eBasedonCr
edi
tSal
es
2.Est
i
mat
eBasedonAnal
y
si
sAgeofRecei
v
abl
es
1.Est
i
mat
eBasedonCr
edi
tSal
es
Thepr
obabl
eamountoft
heaccount
st
hatwi
l
lbeuncol
l
ect
i
bl
ei
sest
i
mat
edbasedon
cr
edi
tsal
es.Theamountoft
hi
sest
i
mat
ei
saddedt
owhat
everbal
anceexi
st
si
n
al
l
owancef
ordoubt
f
ul
account
s.
Exampl
e8.
13:Assumet
hatt
heal
l
owanceaccounthasacr
edi
tbal
anceofBr1,
500
bef
or
eadj
ust
ment
.Thecr
edi
tsal
esf
ort
hey
eari
sBr100,
000andi
ti
sknownf
r
om
pastexper
i
ence1%oft
hecr
edi
tsal
eswi
l
lbeuncol
l
ect
i
bl
e.Ther
ef
or
e,t
headj
ust
i
ng
amountwi
l
l
be=1%@ 100,
000=Br1,
000
Uncol
l
ect
i
bl
eAccountExpense.
1,
000.
0
0
Al
l
owancef
orDoubt
f
ul
Account
s
1,
000.
0
0
Af
t
eradj
ust
i
ngent
r
yi
spost
ed,
al
l
owancef
ordoubt
f
ul
accounthasBr2,
500cr
edi
t
bal
ance.
I
ft
hebal
anceofAl
l
owancef
orDoubt
f
ul
Accounthadbeenadebi
tbal
anceofBr300,
t
heamountoft
headj
ust
mentwoul
dst
i
l
l
hav
ebeenBr1,
000(
t
hati
s1%@ 100,
000)
Uncol
l
ect
i
bl
eAccountExpense.
1,
000.
0
0
Al
l
owancef
orDoubt
f
ul
Account
s
1,
000.
0
0
Af
t
ert
headj
ust
i
ngent
r
yi
spost
ed,
al
l
owancef
ordoubt
f
ul
accounthasBr700debi
t
bal
ance.
Not
e:
anewl
yest
abl
i
shedbusi
nessent
er
pr
i
se,
hav
i
ngnor
ecor
dofcr
edi
texper
i
ence,
mayobt
ai
ndat
af
r
om t
r
adeassoci
at
i
onj
our
nal
sandot
herpubl
i
cat
i
ons.
2. Est
i
mat
eBasedonAnal
y
si
sofAgeofRecei
v
abl
es(
Agi
ngofRecei
v
abl
es)
Ther
ear
esomest
epsi
nagi
ngofr
ecei
v
abl
esmet
hods:
1.Cl
assi
f
yaccountr
ecei
v
abl
ebyage(
day
st
hatr
ecei
v
abl
espastdue)
2.Pr
ov
i
deper
cent
agepr
ov
i
si
onf
oruncol
l
ect
i
bi
l
i
t
y
3.Appl
yt
heper
cent
age
Exampl
e8.
14:
Amountof
Est
.Per
cent
age
Amountof
87
Chapt
erEi
ght
:
Account
i
ngf
orRecei
v
abl
es
AgeI
nt
er
v
al Recei
v
abl
e ofuncol
l
ect
i
bl
e
Notdue
60,
000
1%
1–30day
s
15,
000
2%
31–60day
s
10,
000
10%
61–90day
s
8,
000
25%
TheEst
i
mat
eofUncol
l
ect
i
bl
e
Uncol
l
ect
i
bl
e
600
300
1,
000
2,
000
3,
900
Theest
i
mat
eofuncol
l
ect
i
bl
eaccounti
s3,
900.Thi
samounti
st
hedesi
r
edbal
anceof
t
heAl
l
owancef
orDoubt
f
ulAccountaf
t
eradj
ust
ment
.Ther
ef
or
e,t
headj
ust
mentwi
l
l
bedet
er
mi
nedt
aki
ngi
nt
oaccountt
heexi
st
i
ngbal
anceoft
heAl
l
owancef
orDoubt
f
ul
Account
.Assume,t
heAl
l
owancef
orDoubt
f
ulAccounthasacr
edi
tbal
anceofBr
1,
500bef
or
eadj
ust
ment
.Theadj
ust
i
ngent
r
ywi
l
l
bebyBr2,
400(
3,
900–1,
500)
Uncol
l
ect
i
bl
eAccountExpense.
2,
400
Al
l
owancef
orDoubt
f
ul
Account
s
2,
400
Af
t
erpost
i
ngi
smade,
t
heAl
l
owancef
orDoubt
f
ulAccounthasacr
edi
tbal
anceofBr
1,
500+2,
400=Br3,
900.I
ft
her
ehadbeenadebi
tbal
anceofBr300i
nt
heAl
l
owance
f
orDoubt
f
ulAccountbef
or
et
hey
earendadj
ust
ment
,t
heamountoft
headj
ust
ment
woul
dhav
ebeen4,
200(
3,
900+3,
00=4,
200)
Uncol
l
ect
i
bl
eAccountExpense.
4,
20
0
Al
l
owancef
orDoubt
f
ul
Account
s
4,
20
0
Af
t
erpost
i
ngi
smade,
t
heAl
l
owancef
orDoubt
f
ul
Accounthasacr
edi
tbal
anceofBr
3,
900.
8.
4.
2)
Di
r
ectWr
i
t
eof
fMet
hods
I
ti
susef
ul
when:
1.Apar
t
i
cul
arcust
omeri
sknown
2.Bankr
upt
cynot
i
cei
sav
ai
l
abl
e
3.Ther
ei
sacont
i
nuouscor
r
espondencewi
t
hcust
omer
s
4.Ther
ei
sdi
sappear
anceofacust
omert
hr
oughdeat
h
 Theent
r
yt
owr
i
t
eof
fanaccountwheni
ti
sbel
i
ev
edt
obeuncol
l
ect
i
bl
ei
sas
f
ol
l
ows:
Uncol
l
ect
i
bl
eAccountExpense.
xxxxx
Account
sRecei
v
abl
es
xxxxx
 I
fanaccountt
hathasbeenwr
i
t
t
enof
fi
scol
l
ect
edl
at
er
,
t
heaccountshoul
dbe
r
ei
nst
at
ed.
 I
ft
her
ecov
er
yi
si
nt
hesamef
i
scal
y
earast
hewr
i
t
eof
f
,
t
heent
r
yt
or
ei
nst
at
ei
s
Account
sRecei
v
abl
es
xxxxx
Uncol
l
ect
i
bl
eAccountExpense.
xxxxx
 I
ft
her
ecov
er
yi
smadei
nt
hesubsequentf
i
scal
y
ear
,
i
tmayber
ei
nst
at
edbyan
ent
r
yi
l
l
ust
r
at
edbel
ow:
Account
sRecei
v
abl
es
xxxxx
Recov
er
yofWr
i
t
t
enof
fUncol
l
ect
i
bl
eAccount
.
xxxxx
88